Selected market indicators for period ended 31 January 2017

Provided by Mercer. 
New Zealand investment markets bounced back in January after a series of falls in late 2016.

The S&P/NZX50 Index returned +2.5%, bringing to a stop four consecutive months of negative returns, while the Kiwi dollar appreciated against all major currencies. Globally, equity and bond markets struggled to advance. The US sharemarket was the only major market to perform well, surprisingly outdone by Emerging Markets over the month, which experienced their largest inflows in five months despite the looming threat of the new Trump administration.

The MSCI World Index rose +1.3% (in local currency) during January. Unhedged investors received a return of -2.6%, hurt by a strong NZ dollar, which appreciated +5.1% against the US dollar. Locally, NZ Shares and Government Bonds outperformed other developed markets, up +2.5% and +0.1% respectively. In contrast Global Government Bonds fell -0.6% and Global Aggregate Bonds returned -0.2%. Global Listed Property and Global Listed Infrastructure returned -0.4% and +0.6% respectively.

An estimate of a Balanced Fund gross index return based on selected market indicators for January is +0.2%.

Significant recent items include:
  • The UK Supreme Court ruled on the activation of Article 50 on the 24 January, confirming that the government must hold a vote in the parliament before beginning the process of leaving the European Union.
  • President Trump signed an order cancelling the US participation in the Trans Pacific Partnership (TPP). The US withdrawal effectively undermines the significance of TPP and partner countries like NZ will look to negotiate one to one trade agreements with the US.
  • The New Zealand CPI Index grew by +0.4% in Q4 2016, pushing the annual rate to +1.3% for 2016, back within the Reserve Bank’s target range of between 1 – 3 percent.
  • Economic confidence in the Eurozone surged to a 6-year high in January, led by Spain, Italy and the Netherlands. Across the Atlantic, positive market sentiment coupled with encouraging economic data helped push the Dow Jones Index above 20,000 for the first time despite increasing political controversy.

Trans-Tasman Equities
Despite the rise of protectionism in the US, one of our major trading partners, the NZ market began the year on a positive note (+2.5%), outperforming other developed markets. Across the Tasman, the ASX200 fell -0.8% (AUD) reflecting lower than expected inflation and a deteriorating labour market outlook from the Reserve Bank of Australia. 

Global Equities
Developed markets around the globe delivered mixed returns in January. The MSCI World Index rose +1.3% in local currency terms, supporting by growing consumer confidence and economic momentum in the US. Unhedged investors had a disappointing month due to a strong NZD. Emerging Markets outperformed developed markets, returning +3.9%. 

Property and Infrastructure
Similar to bonds, the Global Listed Property and Global Listed Infrastructure sectors are sensitive to yield spreads and interest rate volatility. January was a quiet month with few intra-month movements in both sectors. Listed Property finished down -0.4% and Listed Infrastructure finished up +0.6%, benefiting from the anticipation of expansionary fiscal policies in the US.

NZ Bonds and Cash
NZ Government and Corporate Bonds both delivered positive returns, +0.1% and +0.4 respectively, also ending a four month decline. Long-term government bond yields finished the month virtually unchanged at 3.36%. The Cash return remains low by historic measures, with the index returning +2.4% for the past 12 months.

Global Bonds
Global bond markets diverged in January with a stable US Treasuries market contrasted against rising yields in Europe. Global Aggregate Bonds and Global Sovereign Bonds returned -0.2% and -0.6% respectively, with the surge in European bond yields largely responsible for the negative returns. Corporate bonds performed better than government bonds as the general economic outlook improved.

The NZ dollar appreciated against all major currencies in January. The USD was trading at above 0.7300 at month end, marking a +5.1% gain for the month. On a trade-weighted basis, the NZ dollar climbed +2.6%. The strong performance was backed by firm economic data and rising inflation.

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