March Quarter 2022

Here’s a summary of global share markets for the three months ending 31 March 2022

Global Shares

Global share markets fell in the March quarter, with the MSCI ACWI Index ‒ Net returning -6.8% in unhedged New Zealand dollar (NZD) terms. Much of the decline was driven by a combination of heightened geopolitical risks and global rate hike expectations. Geopolitical risks rose sharply in the wake of Russia’s invasion of Ukraine, with the West imposing a raft of economic sanctions designed to isolate the country from the rest of the global economy. Sanctions, however, may yet prove to be a double-edged sword given that the subsequent disruption to global energy and commodity markets is likely to drive up prices and add to already-high inflationary pressures. Meanwhile, the US Federal Reserve raised interest rates for the first time since 2018 amid persistently high inflation and warned that rates may need to rise faster than previously thought. Elsewhere, the Bank of England raised interest rates for a third consecutive month in March, while record high inflation in the euro-zone forced a hawkish pivot from the European Central Bank. Stocks were also impacted by a fresh wave of COVID-19 infections in China and renewed concerns over Beijing’s regulatory pressures after officials imposed additional restrictions on the country’s big technology names. Limiting the decline was a series of robust US and European earnings updates and some encouraging economic data, including further improvements in US and European manufacturing activity.

At the country level, all three major US indices – the S&P 500 Index (-4.9%), the Dow Jones Industrial Average (-4.6%) and the tech-heavy NASDAQ (-9.1%) – fell from their
recent highs over the period. Stocks were also lower in China (-14.5%1 ), Europe (-9.2%2 ) and Japan (-2.3%3 ), while the UK’s commodity-heavy FTSE 100 Index (1.8%) recorded positive performance.

New Zealand shares

The New Zealand share market fell over the period, returning -6.9%4 . Contributing to the decline was the Reserve Bank of New Zealand (RBNZ)’s decision to raise the official cash rate a further 0.25% (to 1.00%) in response to surging inflation, which hit a 31-year high in the final quarter of last year.

Stocks were also impacted by rising bond yields, the ongoing spread of Omicron and the war in Ukraine. Limiting the decline was the unemployment rate, which fell to just 3.2% in the December quarter – the measure’s lowest level since modern records began in 1986 – and a series of encouraging earnings updates. At the sector level, information technology was the worst performer, followed by healthcare and consumer discretionary. In contrast, energy, communication services and utilities all posted good gains.

Australian shares

Australian shares made good gains in the first quarter, returning 2.1%5 . Stocks benefited from the Reserve Bank of Australia (RBA)’s insistence that it’s still too early to discuss raising interest rates despite the market bringing forward its rate hike expectations following the latest inflation figures. The market also benefited from strong gains across the major mining companies and a series of encouraging domestic economic data, including a strong rebound in December quarter growth and a further decline in the unemployment rate.

Global listed property

Global listed property weakened in the March quarter, returning -3.4%6 in hedged NZD terms. Similar to the broader equity market, property stocks were impacted by heightened geopolitical risks following Russia’s invasion of Ukraine and the prospect of more aggressive policy tightening in the US (and elsewhere). Property stocks were also impacted sharply by higher long-term government bond yields. Continental Europe was the worst performer, due largely to its proximity to the war in Ukraine. North America, Australia and the UK were also weaker while Japan recorded relatively good gains. In terms of sectors, US malls underperformed while Japanese developers posted strong gains.

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NZ First Quarter Global Equities

Global listed infrastructure

The global listed infrastructure market performed very well over the period, returning 7.5%7 in hedged NZD terms. Infrastructure stocks gained as surging energy prices following Russia’s invasion of Ukraine contributed to strong performances across the market’s energy-related names. North America recorded the largest returns for the quarter, followed by the UK and Japan. In terms of sectors, energy and airports were standouts, with the latter in particular benefiting from easing travel restrictions across Europe and recovering passenger numbers.

Global fixed income

Global bonds fell in the first quarter, returning -4.8%8 in hedged NZD terms. Longer-term government bond yields rose (prices fell) over the period, driven largely by tighter monetary policy globally. Partly offsetting this were the asset class’s traditionally defensive characteristics in the wake of Russia’s invasion of Ukraine. In credit markets, spreads on US and European investment-grade and high-yield debt widened as investors turned more cautious amid increasingly hawkish central bank comments and the war in Ukraine.

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NZ First Quarter Global Fixed Interest

New Zealand fixed income

The New Zealand bond market also fell over the period, returning -3.6%9 . Domestic long-term government bond yields rose (prices fell) after the RBNZ raised interest rates again in February and as investors bet on more aggressive tightening to come. Bonds were also impacted by a series of encouraging earnings results and a further drop in the unemployment rate. The yield on New Zealand 10-year government bonds closed the quarter 83 basis points higher at 3.2%. Meanwhile, credit markets weakened, with spreads widening over the period.

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NZ First Quarter New Zealand Equities

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NZ First Quarter New Zealand Fixed Income

New Zealand dollar

The New Zealand Trade-Weighted Index10 rose 2.1% over the quarter, benefiting from rising domestic interest rates, better-than-expected jobs data and strong gains across the broader commodities complex. Limiting the currency’s advance were global rate hike expectations and fresh mobility curbs in China – our largest trading partner. The NZD rose 8.5% against the Japanese yen, 4.9% against the British pound, 3.5% against the euro and 2.1% against the US dollar. It fell 1.4% against the Australian dollar.

Note: all returns are in local currencies unless otherwise stated

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NZ First Quarter Data Table

1 Shanghai Shenzhen CSI 300 Index
2 Dow Jones EuroStoxx 50 Price Index
3 Tokyo Stock Exchange Tokyo Price Index (TOPIX)
4 S&P/NZX 50 Index with imputation credits
5 S&P/ASX 300 Accumulation Index
6 FTSE EPRA/NAREIT Developed Real Estate Index Net NZD Hedged
7 S&P Global Infrastructure Index (NZD hedged
8 Bloomberg Global Aggregate Index – $NZ Hedged
9 Bloomberg NZ Bond Composite 0+ Yr Index
10 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.