SEPTEMBER QUARTER 2022

QUARTERLY MARKET OVERVIEW

Here's a summary of global share markets for the three months ending 30 September 2022

Global Shares

Global share markets fell in local currency terms in the September quarter but a weakening New Zealand dollar (NZD) meant that they rose in NZD terms, with the MSCI ACWI Index - Net returning 2.4%.

Much of the decline was driven by further, aggressive central bank activity globally and growing recession fears. In the US, the Federal Reserve (Fed) raised interest rates twice over the period after inflation climbed to 8.3% in the 12 months to 31 August. The Fed lifted rates by 0.75% at each of its two scheduled meetings during the quarter, taking its benchmark fed funds rate to a range of between 3.00% and 3.25% – its highest level since 2008. Speaking at the Fed’s press conference following its most recent rate hike, chairman Jerome Powell reaffirmed his determination to rein in inflation and made clear that interest rates will continue to rise until price stability is restored; even if it means tipping the world’s largest economy into recession. Elsewhere, rising consumer prices in the euro-zone saw the European Central Bank (ECB) deliver its first rate hike in 11 years in July; the Bank lifting its main refinancing rate by 0.50%. The ECB followed this up with a further, unprecedented 0.75% increase in early September. Meanwhile, the Bank of England raised rates twice over the period and warned of steeper rate hikes ahead after UK inflation hit double figures in July. Stocks were also impacted by ongoing geopolitical risks and disappointing Chinese growth. Limiting the decline was a series of encouraging US and European earnings updates, which is to say that results were not as bad as many first feared, and further merger and acquisition activity.

At the country level, all three major US indices – the benchmark S&P 500 Index (-5.3%), the Dow Jones Industrial Average (-6.6%) and the tech-heavy NASDAQ (-4.1%) – fell over the period. Stocks were also lower in China (-15.2%1), Europe (-4.0%2), the UK (-3.8%3) and Japan (-1.9%4).

New Zealand shares

The New Zealand share market made relatively good gains in the second quarter, returning 2.2%5. Stocks performed very well through the early part of the period amid hopes that inflation may be peaking and a series of better-than-expected domestic earnings updates. Stocks also benefited from a strong rebound in domestic growth, with the local economy expanding 1.7% in the June quarter. The outcome, which follows the 0.2% contraction we saw in the March quarter, easily beat analysts’ expectations of 1.0% growth. Limiting the advance were a further two rate hikes from the Reserve Bank of New Zealand (RBNZ) and a sharp selloff in global share markets toward the end of the quarter. At the sector level, consumer staples was the best performer, followed by communication services and utilities. Industrials also performed well, while information technology and consumer discretionary recorded sizable declines.

Australian shares

Australian shares made reasonable gains over the period, returning 0.5%6. The gains came despite the Reserve Bank of Australia lifting interest rates three times over the period as it tries to curb rising inflation; investors betting instead that the Bank may need to slow the pace at which it tightens monetary policy if growth slows too quickly. The market also benefited from good gains across the ‘Big Four’ banks and a series of encouraging company updates. Limiting the advance were rising interest rates globally, weakness across the major miners and disappointing Chinese growth.

Global listed property

Global listed property was weaker in the September quarter, falling 10.5%7 in hedged NZD terms. Similar to the broader global equity market, property stocks were impacted by rising interest rates and recession fears, as well as higher bond yields. The UK was the worst performer after bond yields there spiked in response to the new Truss government’s proposed fiscal policies. Continental Europe, Australia, Asia Pacific ex Japan and North America were also weaker. In terms of sectors, US specialty and data centre names posted the biggest losses.

Global listed infrastructure

The global listed infrastructure market was also weaker, returning -7.3%8 in hedged NZD terms. Infrastructure stocks were impacted in part by rising bond yields and the ongoing fallout from Russia’s invasion of Ukraine. Asia Pacific ex Japan, North America and the UK all posted steep declines for the quarter, while Japan recorded relatively strong gains. At the sector level, gas utilities, marine ports and water utilities were amongst the worst performers, while energy posted a more modest decline.

Global Equities

Global fixed income

Global bonds fell in the third quarter, returning -3.7%9 in hedged NZD terms. Longer-term government bond yields rose (prices fell) as central banks continued to raise interest rates in the face of persistently high inflation. Credit markets were mixed. Spreads on US and European investment-grade debt widened amid heightened economic and geopolitical uncertainty, while spreads on their high-yield counterparts narrowed, albeit modestly. Emerging markets debt underperformed.

New Zealand fixed income

The New Zealand bond market also fell over the period, returning -1.4%10. Domestic long-term government bond yields rose (prices fell) as the RBNZ continued to lift interest rates in response to rising inflation. Bonds were also impacted by rising interest rates globally and a series of encouraging company updates. The yield on New Zealand 10-year government bonds closed the quarter 44 basis points higher at 4.3030%. Meanwhile, domestic credit markets were positive, with spreads narrowing over the period.

Global Fixed Interest

New Zealand dollar

The New Zealand Trade-Weighted Index11 fell 2.7% over the quarter, driven in part by tighter monetary policy globally, further commodity price weakness and disappointing Chinese growth. The NZD was also impacted by general US dollar (USD) strength. Limiting the currency’s decline were multiple domestic rate hikes (and expectations of more to come). The NZD fell 7.7% against the USD, 2.5% against the Australian dollar, 2.3% against the Japanese yen and 2.0% against the euro. It gained a modest 0.1% against the British pound.

Note: all returns are in local currencies unless otherwise stated

New Zealand Equities

New Zealand Fixed Income

NZ Data Table for Q3 2022

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

1. Shanghai Shenzhen CSI 300 Index
2. Dow Jones EuroStoxx 50 Price Index
3. FTSE 100 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 Global Aggregate Index – $NZ 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.