Selected market indicators for period ended 31 August 2017

 Provided by Mercer.
After resuming their upward trend in July, global equities largely marked time in August as geopolitical events, particularly the terrorist attack in Spain and escalating tensions between the US and North Korea, made headlines.
However, the news did not prevent the Dow Jones Industrial Average closing in record territory for a second successive month. Despite economic growth surprising on the upside in a number of regions, more defensive sectors also benefitted from a slight unwinding of global yields over the month as inflation expectations continued to soften.

The MSCI World Index increased marginally over the month, up +0.1% (in local currency terms). After climbing strongly in the preceding three months, the NZ Dollar fell against all major currencies (TWI -4.8%) in August, boosting returns from unhedged overseas assets. New Zealand Shares outperformed other developed markets, returning +1.7%. New Zealand Government Bonds rose (+0.5%) over the month, while Global Aggregate and Government Bonds both rose close to +1%, all benefitting from weakening yields. Global Listed Property and Global Listed Infrastructure outperformed the broader equity market, returning +1.3% and +2.2% respectively.

An estimate of a Balanced Fund gross index return based on selected market indicators for August is +1.4%.

Significant recent items include:
  • The third round of Brexit negotiations took place at the end of August. Key agenda items included guarantees over the rights of EU citizens in the UK and UK citizens in the EU, and the UK’s “divorce bill” – a financial settlement covering the UK’s share of EU commitments.
  • US petrol prices hit a two-year high as crude oil refineries along the Texas Gulf coast closed in the wake of Hurricane Harvey. The Gulf of Mexico accounts for nearly 20% of total US crude oil production, and the Texas Gulf coast is home to nearly a third of US refining capacity
  • The NZ Reserve Bank kept the Official Cash Rate unchanged at 1.75% reiterating that “monetary policy will remain accommodative for a considerable period”.
  • The US economy grew at an annualized rate of 3% in the June 2017 quarter, ahead of the consensus forecast of 2.7% and the strongest quarter since Q1 2015. Solid retail sales, business spending and job growth is generating expectations of even stronger growth to come.
Trans-Tasman Equities
New Zealand equities performed well in August, increasing by +1.7% for the period despite continued election surprises. The market was boosted by the strong performance of NZX10 stocks A2 Milk (+25.9%), Contact Energy (+7.5%) and Fisher & Paykel Healthcare (+7.3%). Over in Australia, the ASX 200 Index bounced back from a flat return in July, finishing the month up +0.7%.

Global Equities
The MSCI World index was relatively flat in August, rising just +0.1%, although unhedged investors received a much higher return (+4.8%) due to a weakening NZD. The UK (+1.5%) was the best performer despite ongoing Brexit negotiations, well ahead of Japan (-0.4%) and Europe (+0.1). Emerging Market Equities outperformed developed markets, benefiting from the weaker US dollar.

Property and Infrastructure
Global Listed Property and Global Listed Infrastructure both rose over the month, returning +1.3% and +2.2% respectively, both well ahead of the broader global equity market. Falling global yields and growing geopolitical tensions helped support these more defensive sectors.

NZ Bonds and Cash
New Zealand Government Bonds (+0.5%) and New Zealand Corporate Bonds (+0.5%) both performed well in August. The 10 year NZ government bond yield remained steady over the period, closing at 2.89%. NZ Cash continues to perform as expected and has delivered much better results than NZ Government bonds over the past 12 months (+2.1% versus 0%).

Global Bonds
Global Aggregate Bonds and Global Sovereign bonds returned +1.0% and +1.1% respectively for the month. US Treasury yields fell for a second consecutive month, amid continued fears of an escalation in the tensions between America and North Korea, and little evidence of inflation.

The NZ dollar fell across the board compared to the major overseas currencies in August. The largest depreciation was against the Japanese yen and the euro over the month, falling by -4.9% and -5.3% respectively. On a trade-weighted basis, the NZ dollar fell -4.8%.

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