Selected market indicators for period ended 30 September 2016

13/10/2016
Provided by Mercer.
Equity and bond markets treaded water for the second consecutive month as most market indices produced muted returns in September.

While economic data continued to offer a subdued growth outlook, market-friendly developments on the oil and US political fronts provided just enough impetus for a modest gain in global equities during the month. However, the final weeks of September showed how vulnerable global markets are to even modest shocks, as troubles in the European banking sector reignited fears of potential financial instability following the widespread adoption of extraordinary monetary policies by central banks in recent years.

The MSCI World Index rose +0.2% (in local currency) during September. Unhedged investors received a return of +0.3%, with the NZD falling against the yen, euro and Australian dollar. Locally, NZ Shares finished the month flat, returning 0.0% while NZ Government Bonds fell -0.2%. Global Aggregate Bonds finished the month up +0.1%. Global Listed Property declined during the month, returning -1.1%, while Global Listed Infrastructure returned +1.2%.

An estimate of a Balanced Fund gross index return based on selected market indicators for September is +0.1%.

Significant recent items include:
  • Global debt issuance looks set to hit a record high in 2016. Recent figures indicate sales this year have hit approximately US$5 trillion to end September. While record low interest rates have encouraged countries and companies to issue debt, investor appetite has yet to wane.
  • The Bank of Japan, which has struggled for nearly two decades to bring about steady inflation, announced a revamp of its monetary policy, introducing a target for 10-year interest rates in its latest bid to restart economic growth.
  • The European financial system once again came under the spot light, leading to bank shares in the US, Europe and Japan enduring renewed selling pressure as September came to a close.
  • Oil prices surged in September after the OPEC nations, which collectively produce more than one-third of the world’s oil, surprised investors with an agreement on a small cut in production. While details are yet to be confirmed, the agreement was viewed as an important first step and a sign of stability to what has been a volatile sector in 2016.

Trans-Tasman Equities

It was a tale of two halves for NZ Equities in September, with declines in the first half of the month followed by gains in the second – resulting in a flat month for investors. With valuations stretched, particularly in high dividend stocks, the index was sensitive to global news during the month. Across the Tasman the ASX200 Index returned +0.5%, benefiting from the late rally in commodities.

Global Equities

After a turbulent start to 2016, September mirrored August with modest market movements. However, tension continues to build around the ability of monetary policy to support current valuations in the face of low global growth forecasts. The UK was the only major market to provide significant gains in September (+1.8%), as concerns over potential fallout from Brexit showed signs of fading.

Property and Infrastructure

Global Listed Property (hedged) had a bad month, down -1.1% as investors reacted to rising bond yields. Similar to NZ equities, September was a tale of two halves for property, with the index rising in the last two weeks of the month, erasing some of the falls in the first half. Global Listed Infrastructure provided better performance due in part to the rally in commodity markets to end the month.

NZ Bonds and Cash

NZ Government Bonds declined (-0.2%) while NZ Corporate Bonds rose (+0.2%) in September. As widely expected, the RBNZ left the OCR unchanged at 2% during the month. Much of the language in the RBNZ’s statement was a repeat of August, resulting in little movement in market expectations. Despite solid economic growth in recent months, expectations are the RBNZ will cut rates in November.
 

Global Bonds

Global Bond markets were flat in September. While relief was given to the sector following the Fed’s decision to leave rates unchanged, investors remained anxious about the timing of the next hike. The flow of positive data on the US economy is making a December rate hike increasingly likely. Elsewhere the ECB kept rates on hold, while Japan made dramatic changes in its policy revamp.
 

Currency

The NZ dollar fell against the yen, euro and Australian dollar over the month, while appreciating +0.2% against the US dollar. In recent months the kiwi has benefited from a strong economic outlook and a recovery in the dairy price, while major central banks maintained their near-zero interest rate policies. However, the prospect of further cuts by the RBNZ before year end could put some downward pressure on the NZ currency.
 

 

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