Selected market indicators for period ended 31 May 2016

10/06/2016
 Provided by Mercer.
Markets climbed higher in May following surprisingly strong oil prices and easing concerns over a potential Brexit.

Markets also benefited from economic data suggesting normalisation of growth in Europe and Japan. In Greece, European finance ministers and the IMF also agreed to provide $11.4 billion in aid packages in exchange for another round of austerity and reform measures, further easing concerns over Eurozone instability. Finally, investors were seemingly unfazed by hawkish comments from Fed officials after better than expected data in the US.

The MSCI World Index rose +1.8% during the month (in local currency), lifting the year-to-date return into the black at +0.6%. Unhedged investors received a return of +3.9% with the NZD falling sharply against the USD (-3.2%) and GBP (-2.6%). NZ Shares outperformed offshore markets in May, rising +3.3%. Global Aggregate Bonds increased slightly during the month, returning +0.6%. Similarly, NZ Bonds returned +0.8%. Global Listed Property and Global Listed Infrastructure (both NZD hedged) returned +1.6% and +0.5% respectively.

An estimate of a Balanced Fund gross index return based on selected market indicators for May was 1.7%.

Significant recent items include:
  • Oil continued to surge in May, reflecting supply disruptions in Canada due to the wildfire and unrest in Nigeria. Crude oil surpassed USD $50/bbl in the last week of May and is up more than 85% from its lows in mid-February 2016.
  • Economic data in Japan exceeded expectations with the economy growing at an annualized rate of 1.7% over the first quarter of the year. Markets now anticipate a new stimulus package in June or July to maintain the growth trajectory.
  • The Brazilian Senate voted to impeach President Dilma Rousseff, with Vice-president Michel Temer taking over. Markets welcomed the decision, but question whether a new administration will be able to battle systemic corruption and lead the country out of its deep recession.
  • Russia’s inflation and consumer demand remains weak despite tentative signs of stabilisation. Low oil prices and international sanctions have severely impacted Russia’s budget and liquidity. The Central Bank of Russia is widely expected to cut rates at its next meeting in June.

Trans-Tasman Equities

The NZX 50 hit records highs in May breaching 7000 for the first time and finishing the month up +3.3%. The index continues to benefit from its relatively high dividend yield that has attracted a glut of international money in recent years. Across the Tasman the ASX200 also performed strongly, rising +3.1% during the month ending the month of seven straight weeks of gains.

Global Equities

Global markets were positive for the month, returning +1.8%, led by Japan (+2.6%), the US and Europe (both +1.8%). US equities moved higher in May following news indicating that labour and housing markets were on solid footing, while first quarter GDP growth was also revised up from 0.5% to 0.8%. European equities also advanced, reflecting relief in avoiding another Greek debt crisis.

Property and Infrastructure

Listed property performed broadly in line with global equity markets during the month. The sector continues to be supported by low and declining yields, as well as valuation support from strong demand. Listed infrastructure also rose during the month (+0.5%), although the sector was held back by a selloff in commodities (particularly metals).

NZ Bonds and Cash

The New Zealand listed debt market provided a positive return as bond prices edged forward during the month. Yields declined throughout the month with the 10 year bond yield finishing the month at 2.58% (down from 2.86%). At month end investors were weighing up whether the RBNZ would look to cut rates again in June.

Global Bonds

It was a positive month for global bonds as global yields declined slightly during the month and spreads narrowed. Following encouraging economic signs in the US and Europe, hawkish comments by the Fed had little impact on markets. The agreement between Greece and the Eurozone offset any upward pressure on rates being generated from the positive economic sentiment elsewhere.

Currency

The NZ dollar weakened against the USD, GBP and EUR during the month, but strengthened against the AUD and JPY. After reaching a 10 month high early in May the New Zealand dollar declined against the greenback as markets wait for the Fed and RBNZ decisions in June. The NZ dollar finished the month at 0.6766 against the USD.
 

 

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