Selected market indicators for period ended 30 September 2017

 Provided by Mercer. 
With no real signs of slowing down, global equity markets marched onwards and upwards in September.

Recent positive business and equity market sentiment is reflected in the latest OECD world economic growth rate forecast for 2018 of 3.7%, the strongest rate since 2011 and well above recent levels. Strong economic growth is typically supportive of equity markets. In contrast, global bond markets fell in September, as improving economic conditions have increased expectations of interest rate rises in many of the world’s major economies

The MSCI World Index performed well in September, up +2.3% (in local currency terms). A rising NZ Dollar reduced returns from unhedged overseas assets. NZ equities performed roughly in line with other developed markets, returning +1.8%. In contrast, Bond markets struggled in the face of rising yields, with NZ Government Bonds flat, and Global Government Bonds falling -0.4%. Corporate Bonds outperformed in both markets. Global Listed Property and Global Listed Infrastructure lost value over the month, declining -0.1% and -1.5% respectively. 

An estimate of a Balanced Fund gross index return based on selected market indicators for September is +0.8%.

Significant recent items include: 
  • The NZ and German elections in late-September both resulted in hung parliaments, despite the ruling parties in both countries achieving clear majorities over their nearest rivals. While political uncertainty can often lead to market volatility, both countries’ equity markets have continued to rise post the elections.
  • As expected, central banks in the US, UK, Europe and Japan all left their respective interest rates on hold in September. Market expectations are for a further US rate hike in December, with the Fed also set to begin unwinding its US$4.5tn bond portfolio in October.
  • The US Republican tax plan, released on 27 September, promises to dramatically reduce corporate tax rates. While the net economic effect of the proposal is difficult to predict, if passed through Congress it should provide a material boost to corporate earnings in the US.
  • In late September, Japanese Prime Minister Shinzo Abe - well ahead in current opinion polls - called for a snap election on 22 October. The election will decide whether Japan continues with Abe’s stimulatory economic policies.

Trans-Tasman Equities
Despite some volatility early in the month, the  New Zealand market took the uncertain election outcome in its stride, largely keeping pace with other developed markets in September, returning +1.8%. Across the ditch, the ASX 200 Index delivered a near zero return for the month. Rising household debt (now collectively more than 100% of Australian GDP) threatens to constrain future economic growth.
Global Equities
The MSCI World index (in local currency) returned +2.3% for the month, bringing the 12 month return to almost 18%. Energy stocks were the best performers over the month as oil prices spiked following a series of natural disasters. Emerging Market equities lagged developed markets over the month; the prospect of a stronger US dollar has put an anchor on what has been a buoyant sector in 2017 to date.
Property and Infrastructure
Global Listed Property and Global Listed Infrastructure declined over the month, down -0.1% and -1.5% respectively, both well behind the broader global equity market. Signs of increasing official interest rates have hurt these sectors, as rising global yields allow investors to seek stronger returns elsewhere.  
NZ Bonds and Cash
New Zealand Bonds delivered muted returns in September, with Government Bonds flat and New Zealand Corporate Bonds up just +0.1%. The 10 year NZ government bond yield rose slightly over the month, finishing at 2.96% (well up on the level 12 months’ prior of 2.31%). NZ Cash remains well ahead of NZ Government Bonds over the past 12 months (+2.1% versus +0.2%).
Global Bonds
Global Aggregate Bonds and Global Sovereign bonds both declined over the month, down -0.4% and -0.6% respectively. Performance was hurt by rising global yields over the month, with signs that the policy rates in the US, UK, Europe and Australia could all be raised before year end. The 10 year US Treasury Bill yield rose to 2.33% by the end of September, up from 2.12% a month earlier.

The NZ dollar strengthened against most major currencies in September, despite material falls (c.1.5%) following the uncertain election outcome. The only major currency the NZ dollar lost value against was the British pound, falling by -3.1% for the month and bringing the currency back to a similar level as at 30 June 2016 (one week after the Brexit vote). On a trade-weighted basis, the NZ dollar gained +1.1%.



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