QUARTERLY MARKET OVERVIEW

September quarter 2021

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

Global Shares

Global share markets made only modest gains in the September quarter, with the MSCI ACWI Index ‒ Net returning 0.2% in unhedged New Zealand dollar (NZD) terms. In hedged NZD terms, the Index returned -0.4%. Much of the gains were driven by ongoing fiscal and monetary policy support and a series of robust earnings results globally. In the US, the latest reporting season concluded with 87% of companies listed on the S&P 500 Index announcing earnings that topped analysts’ expectations; including Disney, McDonald’s and Exxon Mobil. We also saw some strong results from European companies such as Société Générale and UBS, as well as UK-listed names Barclays and BP. Stocks also benefited from news the US Senate had approved a US$1 trillion infrastructure package and some encouraging economic data, including better-than-expected US and euro-zone growth figures. Partly offsetting this was a further rise in US inflation, with the consumer price index climbing 0.3% in August. In saying that, the outcome was the measure’s smallest advance in seven months. Limiting the gains were concerns a worldwide resurgence in coronavirus infections could slow the recovery, a late spike in global bond yields and speculation the US Federal Reserve (Fed) may soon begin tapering its asset purchases. Stocks were also impacted by heightened geopolitical risks after the US formally withdrew its forces from Afghanistan and the fallout from China’s ongoing regulatory crackdown; notably the uncertainty surrounding property giant, China Evergrande Group, which has struggled to meet its debt obligations amid a tightening of government restrictions on debt-leveraged financing.

The benchmark US S&P 500 Index (0.2%) made modest gains over the period, while both the Dow Jones Industrial Average (-1.9%) and the tech-heavy NASDAQ Composite Index (-0.4%) fell. However, all three indices hit fresh record highs during the quarter. Share markets were also higher in Japan (2.3%1 ) and the UK (0.7%2 ) but fell in China (-6.8%3 ) and Europe (-0.4%4 ).

New Zealand shares

The New Zealand share market made strong gains over the period, returning 5.2%5 . Contributing to the gains was a series of better-than-expected domestic economic data, including the latest growth and jobs figures. The local economy grew 2.8% in the second quarter (well up on the 1.4% growth recorded in the first quarter), while the unemployment rate fell to just 4.0% over the same period; far better than the 4.5% outcome the market had anticipated. Stocks also benefited from some encouraging domestic earnings results and further corporate activity; notably Australian firm Ampol’s $2 billion takeover of Z Energy. Limiting the advance were expectations the Reserve Bank of New Zealand would raise interest rates in October (which it ultimately did), rising US inflation and Beijing’s ongoing crackdown on private industries.

Australian shares

Australian shares performed well in the third quarter, returning 1.8%6 . Australian stocks benefited from the Reserve Bank of Australia’s decision to maintain its ultra-easy monetary policy settings and a series of encouraging domestic economic data, including the latest growth and employment figures. The market was also supported by good gains across the ‘Big Four’ banks and further corporate activity, including Square’s $39 billion acquisition of buy now, pay later platform, Afterpay. Limiting the advance was the ongoing lockdown in New South Wales, fresh lockdowns in Victoria and Queensland and the spike in new virus infections globally. Stocks were also impacted by weakness across the major miners, China’s ongoing regulatory crackdown and heightened tensions between Canberra and Beijing.

Global listed property

Global listed property was weaker in the September quarter, returning -0.3%7 in hedged NZD terms. Property stocks made good gains through much of the period against a backdrop of stronger earnings results and encouraging economic data globally. However, they gave up their earlier gains toward the end of the quarter amid doubts over the future of China Evergrande Group, a late spike in global bond yields and Fed ‘taper talk’. Asia Pacific ex Japan posted the biggest decline, followed by Continental Europe and Japan. At the sector level, US lodging, healthcare and office names all underperformed.

Global Equities Q3 2021

Global listed infrastructure

The global listed infrastructure market made good gains over the period, returning 2.7%8 in hedged NZD terms. Infrastructure stocks benefited from the US Senate’s approval of President Biden’s massive infrastructure package and further corporate activity, including a $23.6 billion offer for Sydney Airport. The Asia Pacific region outperformed on the back of good gains in Japan, Singapore and Australia, while the UK and Continental Europe struggled. In terms of sectors, airports were the best performers, benefiting from the ‘reopening’ theme. Water utilities and energy were also positive.

Global fixed income

Global bonds were relatively flat in the third quarter, returning just 0.1%9 in hedged NZD terms. Longerterm government bond yields were slightly higher (prices lower) over the period, driven in part by rising US inflation, improving US and euro-zone growth and some encouraging US and European earnings results. Meanwhile, credit markets were weaker, with spreads on US and European investment-grade and high-yield debt widening amid heightened US political uncertainty, inflationary fears and Fed taper talk.

New Zealand fixed income

The New Zealand bond market fell over the period, returning -1.2%10. Domestic long-term government bond yields rose (prices fell) on the back of increasing rate hike expectations, a series of encouraging domestic earnings results and better-than-expected unemployment figures. The yield on New Zealand 10-year government bonds closed the quarter 21 basis points higher at 2.0900%. Meanwhile, credit markets were weaker as spreads widened over the period.

Global Fixed Interest Q3 2021

New Zealand Equities Q3 2021

New Zealand dollar

The New Zealand Trade-Weighted Index11 was flat for the quarter, with domestic rate hike expectations, a series of encouraging earnings results and some better-thanexpected economic data overshadowed by sporadic lockdowns, an increasingly hawkish Fed and evidence that Chinese growth is slowing. The NZD rose 2.7% against the Australian dollar, 1.3% against the British pound and 0.8% against the euro but fell 1.8% against the US dollar and 0.5% against the Japanese yen.

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

New Zealand Fixed Income Q3 2021

All Figures Table Q3 2021

^ 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 Tokyo Stock Exchange Tokyo Price Index (TOPIX)
2 FTSE 100 Index
3 Shanghai Shenzhen CSI 300 Index
4 Dow Jones EuroStoxx 50 Price Index
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 partner