Investment market performance

04/11/2020
Source: BT Funds Management

The September quarter turned out to be a resilient quarter for risk assets.  Despite a resurgence in new COVID-19 cases in the US and across Europe, a growing possibility of a contested US presidential election, inability of US policymakers to agree to new stimulus measures, and stretched asset price valuations; a “search for yield” theme with accommodative central bank policies provided support.  Global equities  returned 5.4% for the quarter to September 2020 while NZ equities  gained 2.6%. 

On the central bank policy front, the US Federal Reserve (the Fed) revised its long-term policy framework by introducing a more flexible form of average inflation targeting which implies that monetary policy will remain supportive for economic growth for longer. The US 10-year Treasury rate rose 2bps to 0.68% over the quarter. In contrast, the NZ 10-year government bond rate closed at an all-time low of 0.5% (43 bps lower over the quarter) as the Reserve Bank of New Zealand (RBNZ) meaningfully expanded its large-scale asset purchase program and further indicated it was open to implementing a negative official cash rate (OCR) as a monetary policy tool in the future. NZ Bonds  returned 2.1%, outperforming global bonds  which returned +0.7% (hedged to the NZ dollar).

In October, just under half of New Zealand's voting population backed incumbent Prime Minister Jacinda Ardern to lead the country for a further three years. With the ability to govern with an outright majority, the Labour Party does not need the support or backing of the Green Party but will still have discussions about how the Greens will be involved in government. Over the course of the election campaign, the Labour Party had already ruled out both a wealth tax and a capital gains tax on housing, however they did say they would impose a new top rate of income tax at 39% on incomes over $180,000 per annum. The focus is now on how the Labour government attempts to get the economic recovery back on track amid the pandemic.

Looking ahead, financial markets are expected to continue to be pulled between persistent COVID-19 challenges, stop-start restrictions and geopolitical risks on one hand, with progress on vaccines, supportive policy and economic data on the other. A key short-term focus will be the US presidential election. With such crosscurrents facing markets, we are likely to have periods of positivity and moments of disappointment, all of which point to potentially elevated market volatility over the coming months.

Overall, a lot of good news is already priced in but there are still pockets of value and opportunity. Ensuring your portfolio is well-diversified across different asset types, securities and investing styles is important.  Investing across a range of assets can help minimise risk in the short term and leave you better placed to achieve your investment goals. Westpac has a number of qualified financial advisers who are available to speak to you if you have any concerns.
 

  1. MSCI ACWI Net Accumulation Index
  2. S&P/NZX50 Index Gross
  3. Bloomberg NZBond Composite 0+ Yr index
  4. Bloomberg Barclays Global Aggregate Index (100% Hedged to NZD)
 

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