Selected market indicators for period ended 31 March 2016

08/04/2016
 Provided by Mercer.
March saw the bull get back up off its haunches as equity markets closed the month up for the first time in 2016.

A recovery in oil prices, easy-monetary policy from major central banks and stable U.S. economic data helped restore confidence in global markets. However, confidence remains on a knife-edge, with gold (traditionally a “safe-haven” asset) posting its largest quarterly gains in three years and expectations for a subdued earnings season indicating not all are convinced the rally will be sustained.

The MSCI World Index returned +5.3% (in local currency) in March, but is still down -4.6% over the last 12 months. A strengthening NZD reduced the return for unhedged investors to +1.4%.  NZ Shares outperformed offshore markets, rising +8.8% over March and remain a standout performer over the last year, up +17.3%. Global Aggregate Bonds had another strong month despite the equity rally, returning +1.0%, as did NZ Bonds, up +0.8%. Global Listed Property (hedged) and Global Listed Infrastructure (hedged) returned +7.7% and +5.5% respectively.

An estimate of a Balanced Fund gross index return based on selected market indicators for March was 3.1%.

Significant recent items include:
  • Seasonally adjusted U.S. payrolls increased 215,000 in March, beating expectations for 205,000 jobs. While the U.S. unemployment rate rose to 5.0% (first monthly increase since May 2015), markets concentrated on the year-on-year 2.8 million jobs added to the U.S. economy.
  • China’s biggest banks posted their lowest annual profit in a decade. Three major banks reported their annual results, which included a write off of USD$22 billion in irrecoverable debt, 40% higher than 2014.
  • Central banks were supposed to be out of ammunition in 2016. However, March saw the European Central Bank cut to new lows and extend its quantitative easing (QE) measures, the Fed soften its rhetoric on future rate hikes, and other central banks continue with QE measures.
  • Both Moody’s and Standard & Poor’s cut the Chinese government credit rating in March due to fears that the transition to domestic-led economic growth is proceeding more slowly than expected.

Trans-Tasman Equities

NZ equities finished the month at a new record high, up +8.8%, after a rate cut by the RBNZ took many by surprise. The ASX200 also rebounded (+4.7%), benefiting from a recovery in commodity prices, which offset a tough month for financials (47% of the index). However, short positions in key mining stocks at month end reached their highest levels in years, indicating it could be a bumpy road ahead.

Global Equities

Global Equities closed out the month up +5.3% (in local currency), recovering some of the January and February declines. Global markets were assisted by a change in rhetoric from central banks and improving commodity prices, which raised investor sentiment. Nevertheless, divergence between monetary policies in the U.S. and other regions generated further price volatility during the month.

Property and Infrastructure

Investors’ search for yield continued as interest rates declined further during the month, leading to significant gains for both Listed Infrastructure and Listed Property in March.  Infrastructure also benefited from commodity price increases over the month. Global Listed Property (hedged) outperformed the broader equity market, returning +7.7%.

NZ Bonds and Cash

NZ bonds benefited from the RBNZ cutting the OCR to 2.25% during the month, as falling global yields put further downward pressure on domestic interest rates. The NZ 10-year Government bond yield fell to 2.85% during the month. With little sign of inflation and indications that business confidence is now at five-year lows, further RBNZ rate cuts are expected in 2016.

Global Bonds

Global Sovereign bonds returned +0.7% over the month, as bonds benefited from the extension of accommodative central bank policies and falling yields. Global Aggregate Bonds returned +1.0%, outperforming the sovereign index as corporate bonds benefited from tightening spreads (rising prices), reversing some of the expansion that occurred during the more risk-averse start to 2016.

Currency

The NZ dollar strengthened against most currencies during the month, with the exception of the AUD. Despite declines early in the month (after the RBNZ cut the OCR), the NZD continued to appreciate as central banks around the world lowered interest rate expectations. Suggestions of a currency war continue, as countries look to devalue their currencies to provide economic stimulus in a low growth environment.
 

 

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