QUARTERLY MARKET OVERVIEW

June quarter 2021

Here’s a summary of global share markets for the three months ending 30 June 2021

Global shares

Global share markets made strong gains in the June quarter, with the MSCI ACWI Index ‒ Net returning 7.6% in unhedged New Zealand dollar (NZD) terms. In hedged NZD terms, the Index returned 7.1%. Much of the gains were driven by ongoing fiscal and monetary policy support and optimism that an acceleration in vaccination efforts in some of the world’s biggest (and hardest hit) economies will help drive the global recovery. In saying that, we were reminded of coronavirus’s potential threat to the recovery following a series of outbreaks of the highly transmissible delta variant in countries like Japan, Australia and Russia. Stocks also benefited from a series of positive economic data, including news the US economy expanded at a 6.4% annualised pace in the March quarter. We also saw better-than-expected US manufacturing and services activity figures and improving euro-zone factory output. Sentiment was further buoyed by some encouraging US and European earnings results and the prospect of additional US fiscal stimulus after President Biden announced a USD2 trillion plan to upgrade the country’s infrastructure. Limiting the gains was a sharp rise in US inflation and a hawkish pivot by the US Federal Reserve (Fed) at its June gathering. The Fed, which upgraded both its inflation and growth forecasts in June, said it now expects to raise interest rates twice by the end of 2023 after saying in March that it didn’t expect to lift rates until at least 2024. Stocks were also impacted by rising frictions between China and the West.

The three major US indices – the S&P 500 Index (8.2%), the Dow Jones Industrial Average (4.6%) and the techheavy NASDAQ Composite Index (9.5%) – all hit further record highs during the quarter. Share markets were also higher in the UK (4.8%1), Europe (3.7%2) and China (3.5%3) but fell in Japan (-0.5%4) as officials there battled to contain a resurgence in new virus infections.

New Zealand shares

The New Zealand share market made modest gains over the period, returning 0.9%5. Contributing to the gains was a series of encouraging economic data, including an unexpected decline in the unemployment rate and betterthan- expected growth figures. The unemployment rate fell to 4.7% in the first quarter (down on the 4.9% recorded in the previous quarter), while gross domestic product (GDP) rose 1.6% in the three months to 31 March. Stocks also benefited from some positive earnings updates from the likes of Z Energy and Mainfreight and further corporate activity, including Gallagher Group’s acquisition of Melbourne-based virtual fencing company Agersens. Limiting the gains were concerns over the pace of the local vaccine rollout, rising US inflation and speculation the Reserve Bank of New Zealand could raise interest rates sooner than expected after hinting at as much following its May board meeting.

Australian shares

Australian shares performed well in the second quarter, returning 8.5%6. Australian stocks benefited from the Reserve Bank of Australia’s decision to maintain its ultraeasy monetary policy settings and a series of encouraging economic data, including the latest jobs and growth figures. The unemployment rate fell to just 5.1% in May, while GDP printed at 1.8% in the March quarter; easily beating analysts’ expectations of 1.5% growth. The market also benefited from strong gains across the major miners and further corporate activity. Limiting the advance was a sharp jump in US inflation, escalating tensions between Canberra and Beijing and fears that coronavirus could derail the country’s recovery after several states imposed lockdowns in response to outbreaks of the more contagious delta variant.

Global listed property

Global listed property recorded strong gains in the June quarter, returning 9.0%7 in hedged NZD terms. Continental Europe was the best performer over the period, driven by strong gains in Germany, France and Belgium. North America, the UK, Japan, Australia and Asia Pacific ex Japan were also positive for the quarter. In terms of sectors, US self-storage, malls and residential names posted the biggest gains. US industrials and data centres were also materially higher, while Japanese real estate investment trusts and developers underperformed the broader market.

Figure 01 NZ Q2 2021 Market Overview

Global listed infrastructure

The global listed infrastructure market made reasonable gains over the period, returning 1.9%8 in hedged NZD terms. North America performed well on the back of strong gains in both the US and Canada. The UK and Asia Pacific ex Japan were also positive for the quarter, while Japan and Continental Europe both underperformed. At the sector level, energy was again the standout as oil prices extended their gains on recovery expectations. Electric utilities, multi utilities and airports underperformed; the latter impacted by a jump in coronavirus infections throughout the Asia Pacific region.

Global fixed income

Global bonds made modest gains in the second quarter, returning 1.0%9 in hedged NZD terms. Longer-term government bond yields were mixed, with a series of fresh coronavirus outbreaks and heightened tensions between China and the West partly offset by rising US inflation, encouraging vaccine developments and improving economic data globally. Meanwhile, credit markets made further gains amid ongoing government and central bank stimulus, encouraging earnings growth and the general optimism surrounding the recovery.

New Zealand fixed income

The New Zealand bond market edged slightly higher over the period, returning 0.1%10. Domestic long-term government bond yields rose (prices fell) amid concerns over the pace of the government’s vaccine rollout, further lockdowns in some of Australia’s biggest cities and rising tensions between China and the West. The yield on New Zealand 10-year government bonds closed the quarter eight basis points higher at 1.8850%. Meanwhile, credit markets made modest gains as spreads narrowed slightly.

Figure 02 NZ Q2 2021 Market Overview

Figure 03 NZ Q2 2021 Market Overview

New Zealand dollar

The NZD fell slightly over the period, with the Fed’s hawkish pivot and speculation that domestic interest rates could rise sooner than expected overshadowing a series of better-than-expected economic data. The NZD fell 1.4% against the euro and 0.6% against the British pound. It rose 1.4% against the Australian dollar and 0.1% against the US dollar and was flat against the Japanese yen. The broader New Zealand Trade- Weighted Index closed the quarter down 0.2%11.

Note: all returns are in local currencies unless otherwise stated.

Figure 04 NZ Q1 2021 Market Overview

Table 01 NZ Q1 2021 Market Overview

^ Russell Global Large Cap Index until 30 September 2018, MSCI ACWI Index – Net thereafter
* Russell Global Large Cap Index (NZD hedged) until 30 September 2018, MSCI ACWI Index – Net (NZD hedged) thereafter
All returns in local currency terms unless otherwise stated.

1 FTSE 100 Index
2 Dow Jones EuroStoxx 50 Price Index
3 Shanghai Shenzhen CSI 300 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 Barclays Global Aggregate Bond Index (NZD 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.