Global share markets made strong gains in the June quarter, with the MSCI ACWI Index ‒ Net returning 8.4% in unhedged New Zealand dollar (NZD) terms. Contributing to the gains were increasing expectations the US Federal Reserve (Fed) would soon hit the pause button on interest rates, which it did; the Bank maintaining its benchmark fed funds rate at a target range of between 5.00% and 5.25% in June. In its press release accompanying the decision, the Fed said, “holding the target range steady…allows the Committee to assess additional information and its implications for monetary policy.” However, a majority of officials still believe that high inflation, together with the enduring strength of the US economy, will likely warrant further rate increases this year. Elsewhere, the European Central Bank (ECB) and the Bank of England (BoE) raised interest rates twice over the period as inflation in both regions remained elevated. The ECB lifted its main refinancing rate from 3.50% to 4.00% and described another hike in July as “very likely”, while the BoE lifted its benchmark interest rate from 4.25% to 5.00%; including a surprisingly aggressive 0.50% increase in June after core inflation in the UK hit a 31-year high in May. Stocks also benefited from fresh economic stimulus in China, an end to the standoff between Democrats and Republicans over the US government’s debt ceiling and a series of mostly encouraging earnings updates; which is to say earnings were ‘less bad’ than the market had anticipated.
In the US, the Dow Jones Industrial Average (3.4%), the benchmark S&P 500 Index (8.3%) and the tech-heavy NASDAQ (12.8%) all performed well over the period; the NASDAQ in particular rising on the back of strong gains across index heavyweights Apple, Microsoft and Meta (formerly Facebook). Share markets were also higher in Japan (14.2%)1 and Europe (1.9%)2 but fell in the UK (-1.3%)3 and China (-5.1%)4.
New Zealand shares
The New Zealand share market recorded modest gains in the second quarter, returning 0.4%5 amid further economic stimulus in China – our largest trading partner – and a strong lead from US stocks. Limiting the advance were further domestic interest rate hikes, with the Reserve Bank of New Zealand (RBNZ) lifting the official cash rate twice in the face of still-high inflation. Consumer prices rose 6.7% in the 12 months to 31 March, which was down on the 7.2% we saw in the 12 months to 31 December but still well above the Bank’s 1-3% target range. In response, the RBNZ lifted interest rates by 0.50% in April and by a further 0.25% in May, taking the official cash rate to 5.50%. Stocks were also impacted by higher bond yields and softer domestic growth, with the local economy shrinking 0.1% in the March quarter. The outcome, which follows the downwardly revised 0.7% contraction we saw in the final quarter of last year, means the New Zealand economy entered a ‘technical recession’6. At the sector level, information technology was the best performer, followed by materials and financials. Utilities also performed well, while consumer-related names and healthcare underperformed the broader market.
Australian shares made good gains over the quarter, returning 1.0%7. Much of the gains were driven by easing inflation toward the end of the period and increasing speculation the Reserve Bank of Australia (RBA) would leave interest rates on hold in July. [Note: the RBA did in fact leave rates on hold following its early July gathering.] Stocks also benefited from fresh economic stimulus in China and a strong lead from US stocks. Limiting the gains was weakness across the country’s major miners, which together comprise a large part of the market.
Global listed property
Global listed property was also positive for the quarter, rising 1.2%8 in hedged NZD terms. Similar to the broader global equity market, property stocks benefited in part from increasing expectations the Fed would soon hit the pause button. At the regional level, Japan was the best performer. North America and Australia also performed well, while the UK, Asia ex Japan and Continental Europe were all weaker. In terms of sectors, US technology-related stocks and Japanese developers posted the biggest gains.
Global listed infrastructure
The global listed infrastructure market was slightly weaker over the period, returning -0.3%9 in hedged NZD terms. Emerging markets recorded the biggest decline. North America, Asia ex Japan, the UK and Japan also struggled, while Continental Europe outperformed the broader market. At the sector level, gas utilities and airports were amongst the worst performers, while toll roads and energy pipelines made relatively good gains.
Global fixed income
Global bonds were relatively flat for the quarter, returning just 0.1%10 in hedged NZD terms. Longer-term government bond yields rose (prices fell) amid higher interest rates in the UK and Europe, potentially higher US interest rates and an end to the standoff between Democrats and Republicans over the US government’s debt ceiling. Credit markets were stronger, with spreads on US and European high-yield and investment-grade debt tightening over the period. Hard and local currency emerging markets debt also performed well.
New Zealand fixed income
The New Zealand bond market weakened over the period, returning -0.6%11 . Long-term New Zealand government bond yields rose amid tighter domestic monetary policy and higher bond yields globally. In contrast, bonds benefited from the asset class’s traditionally defensive qualities in the face of heightened geopolitical uncertainty. The yield on New Zealand 10-year government bonds closed the quarter 43 basis points higher at 4.6230%. Meanwhile, local credit markets were positive, with spreads narrowing slightly over the period.
New Zealand dollar
The New Zealand Trade-Weighted Index 12 fell 0.6% over the quarter, driven in part by tighter monetary policy globally and weakness across the broader commodities complex. Limiting the currency’s decline were domestic rate hikes in April and May. The NZD fell 4.8% against the British pound, 3.2% against the US dollar, 2.7% against the euro and 1.7% against the Australian dollar. It rose 5.2% against the Japanese yen.
^ Russell Global Large Cap Index until 30 September 2018, MSCI ACWI Index - Net thereafter
All returns in local currencies unless otherwise stated
Note: all returns are in local currencies unless otherwise stated.
1 Tokyo Stock Exchange Tokyo Price Index (TOPIX)
2 Dow Jones EuroStoxx 50 Price Index
3 FTSE 100 Index
4 Shanghai Shenzhen CSI 300 Index
5 S&P/NZX 50 Index with imputation credits
6 A technical recession is defined as two consecutive quarters of negative growth
7 S&P/ASX 300 Accumulation Index
8 FTSE EPRA/NAREIT Developed Real Estate Index Net NZD Hedged
9 S&P Global Infrastructure Index (NZD hedged)
10 Bloomberg Global Aggregate Index – $NZ Hedged
11 Bloomberg NZ Bond Composite 0+ Yr Index
12 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.