Global shares
Global share markets made good gains in the September quarter, with the MSCI ACWI Index ‒ Net returning 2.1% in unhedged New Zealand dollar (NZD) terms. Much of the gains continued to be driven by central bank activity; notably in the US, where the Federal Reserve (Fed) lowered its benchmark fed funds rate by 0.50% to a target range of between 4.75% and 5.00%. Whilst the rate cut itself had been widely anticipated, the size of the move had been the subject of much debate in the lead up to the meeting as the Bank’s focus shifted from taming inflation to protecting the labour market and the country’s economic expansion. Speaking after the meeting, Chairman Jerome Powell said the decision to cut rates by 0.50% didn’t imply that the inflation fight was over, but rather that officials had growing confidence it was time for a recalibration of the Bank’s policy stance. He also noted that the larger-than-normal move shouldn’t be interpreted as the beginning of a more aggressive rate cutting cycle. Regardless, the bigger move added to optimism the US economy can achieve a ‘soft landing’, whereby the Fed tames inflation without triggering an economic downturn. The Fed also signalled that it expects to lower interest rates by a further 0.50% this year, another 1.00% in 2025 and a further 0.50% in 2026. Elsewhere, both the Bank of England and the European Central Bank cut interest rates during the period, while the Bank of Japan unexpectedly lifted its overnight call rate in July. Share markets also benefited from a series of mostly positive corporate updates and a sharp decline in long-term government bond yields. Limiting the advance was heightened geopolitical risks, including a material escalation in Middle East tensions.
At the country level, the benchmark US S&P 500 Index (5.5%), the Dow Jones Industrial Average (8.2%) and the tech-heavy NASDAQ Composite (2.6%) all recorded fresh highs over the period. Stocks were also higher in China (16.1%1 ), Europe (2.2%2 ) and the UK (0.9%3 ) but fell in Japan (-4.2% 4 ).
New Zealand shares
New Zealand shares outperformed their global counterparts in the third quarter; the local market returning 6.4%5 . Stocks benefited in large part from the Reserve Bank of New Zealand (RBNZ)’s surprise decision to begin cutting interest rates; the Bank lowering the official cash rate 0.25% (to 5.25%) in August. Most analysts had expected the Bank to leave rates on hold. In its post-meeting statement, the RBNZ noted that annual consumer price inflation is returning to the Bank’s 1-3% target range and is expected to remain near the (2.0%) mid-point over the foreseeable future. The Bank added that the pace of further easing will depend on officials’ confidence that pricing behaviour remains consistent with a low inflation environment, and that inflation expectations are anchored around the 2.0% target. [Note: the RBNZ cut interest rates a further 0.50% (to 4.75%) following its early October gathering. The Bank didn’t meet in September.] The local market also benefited from rate cuts in the US, Europe and the UK, and a positive lead from major developed markets. At the sector level, financials, healthcare and materials recorded very strong gains over the period, while communication services and traditionally defensive areas of the market like utilities and consumer staples were weaker.
Australian shares
Australian shares made strong gains over the period, returning 7.8%6 . Much of the gains were driven by global and domestic central bank activity. In terms of Australian central bank activity, the Reserve Bank of Australia (RBA) left interest rates on hold throughout the period but warned that whilst inflation has fallen considerably since its peak in 2022, it remains some way above the midpoint of the Bank’s 2-3% target range. The latest (quarterly) figures showed headline inflation rose 3.8% in the 12 months to 30 June, which was up on the 3.6% increase we saw in the previous quarter but in line with market expectations. Core inflation – the RBA’s preferred measure since it strips out volatile food and energy prices – eased from 4.0% to 3.9%; slightly below the 4.0% gain the market had anticipated but still well outside the Bank’s target range. Speaking after the RBA’s September gathering, Governor Michele Bullock, citing still high inflation, ruled out lowering the cash rate this year, saying near-term interest rate cuts are not on the agenda. However, her comments were at odds with the market’s own rate cut expectations, which at the time of writing put the odds of a rate cut in December at around 70%. Stocks also benefited from a series of mostly positive earnings results, a sharp decline in long-term government bond yields and strong gains across the ‘Big Four’ banks and major miners, which together comprise a large part of the index.
Global listed property
Global listed property performed well in the third quarter, returning 13.7%7 in hedged NZD terms. Like the broader equity market, property stocks benefited from central bank activity, including the Fed’s decision to begin lowering interest rates with an outsized 0.50% move rather than the standard 0.25% reduction. The market also benefited from a sharp decline in long-term government bond yields; particularly in the US. At the regional level, Asia ex Japan posted the biggest gains. North America, Continental Europe, Australia, the UK and emerging markets were also positive, while Japan recorded a relatively modest decline. In terms of sectors, US office, storage and healthcare names were amongst the best performers."
Global listed infrastructure
The global listed infrastructure market made strong gains over the period, returning 11.2%8 in hedged NZD terms. Like other interest rate sensitive sectors, listed infrastructure benefited from a series of rate cuts globally and a sharp decline in long-term government bond yields. North America posted the biggest gains for the quarter, followed by Asia ex Japan and the UK. Continental Europe, Australia and emerging markets were also positive, while Japan significantly underperformed the broader market. At the sector level, electric and multi utilities were amongst the best performers over the period. Water utilities and energy also performed well.
Global fixed income
Global bonds were higher for the quarter, returning 4.2%9 in hedged NZD terms. Longer-term government bond yields fell (prices rose) over the period, driven largely by the Fed’s first rate cut since the early days of the COVID-19 pandemic. Bonds also benefited from interest rate cuts in Europe and the UK and the asset class’s traditionally defensive characteristics in the face of heightened geopolitical risks. Global credit markets were stronger for the quarter, with spreads on US and European high-yield and investment-grade debt narrowing throughout the period. Both hard and local currency emerging markets debt recorded good gains.
New Zealand fixed income
The New Zealand bond market made good gains over the period, returning 3.9%10. Domestic long-term government bond yields fell in line with their global counterparts. Yields were also pressured by the RBNZ’s surprise rate cut in August; the central bank’s first since March 2020. The yield on New Zealand 10-year government debt closed the quarter 43 basis points lower at 4.2420%. Local credit markets also performed well, with spreads narrowing throughout the period.
New Zealand dollar
The New Zealand Trade-Weighted Index11 was flat for the quarter. The local currency benefited from general US dollar (USD) weakness as investors positioned for Fed rate cuts, however this was offset by the RBNZ’s surprise rate cut in August and weakness across the broader commodities complex. The NZD rose 4.7% against the USD, 0.6% against the Australian dollar and 0.1% against the euro. It fell 7.0% against the Japanese yen and 1.2% against the British pound.
^ Russell Global Large Cap Index until 30 September 2018, MSCI ACWI Index ‒ Net thereafter
Note: all returns are in local currencies unless otherwise stated.
Disclaimer
The information contained in this publication was prepared by Russell Investment Group Limited. It has been compiled from sources considered to be reliable, but is not guaranteed. This publication provides general information only and should not be relied upon in making an investment decision. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. All investments are subject to risks. Past performance is not a reliable indicator of future performance.
Copyright ©2024 Russell Investments. All rights reserved. This information contained on this website is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments.
1 Shanghai Shenzhen CSI 300 Index
2 Dow Jones EuroStoxx 50 Price Index
3 FTSE 100 Index
4 Tokyo Stock Exchange Tokyo Price Index (TOPIX)
5 S&P/NZX 50 Index with imputation credits
6 S&P/ASX 300 Accumulation Index
7 FTSE EPRA/NAREIT Developed Real Estate Index Net NZD Hedged
8 S&P Global Infrastructure Index (NZD hedged)
9 Bloomberg Global Aggregate Index – $NZ Hedged
10 Bloomberg NZ Bond Composite 0+ Yr Index
11 The trade-weighted index for the NZD is an indicator of movements in the average value of the NZD against the currencies of our major trading partners.