DECEMBER QUARTER 2024

QUARTERLY MARKET OVERVIEW

DECEMBER QUARTER 2024

Global shares

Global share markets performed well in the December quarter, with the MSCI ACWI Index ‒ Net returning 12.4% in unhedged New Zealand dollar (NZD) terms. Much of the gains were driven by US markets, which rose strongly in the wake of Donald Trump’s decisive victory in the country’s presidential election. Trump’s proposed policies, including promises of lower taxes and less corporate regulation, are generally considered to be more growth friendly. In saying that, Trump’s win did raise concerns that his pro-growth policies, together with the threat of tariffs, could stoke inflation and impact the pace of US interest rate cuts. For its part, the Federal Reserve (Fed) cut interest rates twice over the period, taking its benchmark fed funds rate to a target range of between 4.25% and 4.50%. However, the Bank also signalled that it now expects to cut rates just twice in 2025; two less than it projected in September. The change in the projected number of rate cuts comes amid a combination of persistent inflation, which has trended sideways in recent months, a resilient jobs market and a robust economy. Speaking after the Fed’s latest (December) gathering, Chairman Jerome Powell said the US economy is in a good place but emphasised the need for policymakers to remain cautious regarding future monetary policy adjustments. At the time of writing, money markets were fully priced for another move lower in June. Elsewhere, both the European Central Bank and the Bank of England cut interest rates during the period, while the Bank of Japan left its overnight call rate on hold. Limiting the gains was lacklustre Chinese growth, higher long-term government bond yields and heightened geopolitical risks.

At the country level, the US S&P 500 Index (2.1%), the Dow Jones Industrial Average (0.5%) and the NASDAQ Composite (6.2%) all hit record highs over the period. The NASDAQ Composite even closed above the 20,000 point mark for the first time. Stocks were also higher in Japan (5.3%1 ), Europe (-2.1%2 ) China (-2.1%3 ) and the UK (-0.8%4 ).

Q4 2024 Global Equities

New Zealand shares

New Zealand shares also made good gains in the fourth quarter; the local market returning 5.6%5 . Stocks benefited from the Reserve Bank of New Zealand (RBNZ)’s decision to cut its official cash rate by 0.50% at each of its October and November meetings. Inflation in New Zealand is now close to the midpoint of the RBNZ’s 1-3% target range, while economic growth and the labour market remain weak. The local economy shrank 1.0% in the three months to 30 September, which followed the 1.1% contraction we saw in the June quarter. The outcome was also much worse than the 0.4% contraction the market had anticipated. Officials expect economic growth to recover in 2025 as lower interest rates spur investment and spending, though employment growth isn’t likely to pick up until midway through the year. Importantly, the Bank left the door open for more rate cuts in the near term. New Zealand’s official cash rate currently sits at 4.25%. The RBNZ next meets on 19 February. Stocks also benefited from Trump’s election win in November and signs of a recovery in domestic company earnings. Limiting the local market’s gains was the Fed’s hawkish pivot toward the end of the period and disappointing growth in China; New Zealand’s largest trading partner. At the sector level, information technology, energy and industrials recorded very strong gains over the period, while materials, consumer staples and real estate were all weaker.

Q4 2024 NZ EQUITIES

Australian shares

Australian shares were weaker over the period, with the S&P/ASX 300 Accumulation Index closing the quarter down 0.8%. The Australian market tracked its US counterpart higher for much of the period, benefiting in part from Trump’s win in the US presidential election. However, stocks later reversed direction following a hawkish pivot from the Fed and still high domestic interest rates. The Reserve Bank of Australia (RBA) left its official cash rate on hold at 4.35% throughout the quarter but reiterated that inflation remains too high. Encouragingly, though, the RBA did say it’s gaining some confidence that inflation is moving sustainably toward the midpoint of its 2-3% target range. The Bank also dropped from its latest (December) post-meeting statement its previous threat to raise interest rates by removing the words ‘the Board is not ruling anything in or out’, implying that officials have become less concerned about the upside risks to inflation. At the time of writing, the market was fully priced for a 0.25% interest rate cut in April. Also weighing on sentiment were higher domestic government bond yields, concerns over China’s growth outlook and weakness across the country’s major miners, which together comprise a large part of the index.

Global listed property

Global listed property fell sharply in the fourth quarter, returning -7.5%6 in hedged NZD terms. Contributing to the decline was a sharp rise in long-term government bond yields, which climbed on the back of Trump’s decisive win in the US presidential election and expectations of fewer US rate cuts. At the regional level, emerging markets posted the biggest decline for the quarter, followed by the UK, Asia ex Japan and Continental Europe. North America, Japan and Australia were also weaker; though they did outperform the broader index over the period. In terms of sectors, US storage, industrial and specialty names were amongst the worst performers, while US malls and technology-related stocks made relatively strong gains.

Global listed infrastructure

The global listed infrastructure market made modest gains over the period, returning 1.0.%7 in hedged NZD terms. Much of the gains were driven by strong performances from North America and Australia. Asia ex Japan also performed relatively well, while the UK, Continental Europe and emerging markets were all weaker; the latter impacted in part by Chinese growth concerns. At the sector level, energy was the best performer over the period, benefiting from higher oil prices. Airports and marine ports also performed well, while water utilities, electric utilities and renewables all struggled.

Global fixed income

Global bonds were weaker for the quarter, returning -1.2%8 in hedged NZD terms. Longer-term government bond yields rose (prices fell) over the period, driven by Donald Trump’s election win and the Fed’s hawkish pivot. Bonds were also impacted by further political turmoil in major European economies Germany and France. In contrast, bonds benefited from their traditionally defensive qualities 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. A stronger US dollar (USD) saw hard currency emerging markets debt outperform local currency emerging markets debt.

GLOBAL FIXED INCOME

New Zealand fixed income

The New Zealand bond market edged slightly higher over the period, returning 0.7%10. Domestic long-term government bond yields rose (in aggregate) throughout the quarter; though not as much as their global counterparts after the RBNZ cut interest rates in October and November. The yield on New Zealand 10-year government debt closed the quarter 17 basis points higher at 4.4110%. Local credit markets were flat for the quarter, with spreads unchanged over the period.

NEW ZEALAND FIXED INCOME

New Zealand dollar

The New Zealand Trade-Weighted Index10 fell 5.9% in the fourth quarter. Much of the decline was driven by USD strength; the USD rising on expectations of fewer Fed rate cuts and its traditional ‘safe haven’ qualities in the face of ongoing geopolitical uncertainty. The local currency was also impacted by the RBNZ’s two outsized rate cuts. The NZD fell 11.4% against the USD, 5.5% against the British pound, 4.8% against the euro, 2.6% against the Japanese yen and 1.3% against the Australian dollar.

table

^ 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.

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1 Tokyo Stock Exchange Tokyo Price Index (TOPIX)
2 Dow Jones EuroStoxx 50 Price Index
3 Shanghai Shenzhen CSI 300 Index
4 FTSE 100 Index
5 S&P/NZX 50 Index with imputation credits
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.