Selected Market Indicators for Period Ended 31 March 2019 

March brought more good news for investors, with most asset classes again posting positive returns.

However, there are clear signs that although markets are currently buoyant, global economic activity has bearish (“negative”) undertones and downside risks remain prevalent. This sentiment was broadly reflected in global central bank policy positioning over the month. Most developed market policy makers indicated that interest rates would remain on hold for the foreseeable future, if not fall, and the US Federal Reserve indicated it would bring the current round of quantitative tightening activity to an end by September this year.

The high dividend yielding NZ share market performed very well (+5.9%), significantly outperforming other developed and emerging markets. The MSCI World Index returned +1.6% in local currency terms and +1.2% in unhedged NZ dollars. The Listed Property and Infrastructure sectors delivered strong returns, up 3.8% and 3.0% respectively over the month. Bonds markets rallied following the generally dovish central bank announcements; NZ and Global Aggregate Bonds returned +1.5% and +1.7% for the month.

An estimate of a Balanced Fund gross index return based on selected market indicators for March is 2.2%.

Significant developments include:
 

• The US Fed stated that it will refrain from raising interest rates for the rest of the calendar year, and also plans to cut-back and conclude its current quantitative tightening (balance sheet reduction) activity, beginning in May and ending in September this year.
• UK Prime Minister Theresa May’s Brexit plans remain completely gridlocked. May’s three withdrawal agreements put forward to the House of Commons have all been roundly rejected.  With the new April 12 deadline less than a week away, a ‘no-deal Brexit’ is a real possibility.
• The RBNZ left the OCR unchanged at 1.75%, with Governor Adrian Orr indicating the next move will likely be downward; the defensive tone took many by surprise. Future monetary policy decisions will also now be decided by a new seven member panel, chaired by Orr.

Trans-Tasman Equities

The NZX 50 was a standout performer compared to its global counterparts, returning +5.9% over the month, and now +19.6% over 12 months. Facing lower interest rate yields and slowing global growth, NZ offers investors an attractive, albeit expensive, high-dividend yield market. The Australian market was far more subdued by comparison, up only +0.7% over the month.

Global Equities

Developed equity markets returned +1.6% in March. Equities took a hit following the US Fed’s two-fold announcement. While this suggests there is skepticism surrounding future global economic growth, positive news, including the resumption of US-China trade talks helped markets remain positive over the month. UK (+3.2%) and European markets (+2.0%) performed well despite considerable uncertainty amongst Brexit woes and weak European manufacturing data. Emerging Markets (+1.4%) were just behind their developed counterparts. All returns in local currency.

Property and Infrastructure

Global Listed Property (hedged) and Global Listed Infrastructure (hedged) both delivered strong returns for the month, up +3.8% and +3.0% respectively. As the economy slows, and with global interest rates seemingly on hold, these two more defensive sectors become relatively more attractive, providing investor’s portfolio diversification as well as good return potential.

NZ Bonds and Cash

NZ bonds rallied strongly, up 1.5% over the month, with NZ Government bonds up 1.9%.  The NZ and Australian 10 year bond yields both hit record lows during the month, closing out at 1.82% and 1.78%, respectively. The Reserve Banks of both nations kept their respective Official Cash Rates on hold in March. The New Zealand Cash return was +0.2% for the month.

Global Bonds

Global aggregate bonds rallied and returned +1.7% for the month. Investors reacted to the dovish central bank announcements signaling slowing global growth, flocking to “less risky” fixed income assets. The 10 year US Treasury yield fell to its lowest level since December 2017 (2.42%), falling below the yield on the 3-month T-Bill in the process; the first time this has happened since 2007.

Currency

The NZ dollar gained slightly against the US dollar (+0.1%), and strongly against the pound (+2.2%) and euro (+1.5%) over the month. The NZ dollar, slightly down on a trade weighted basis, faced similar headwinds as the US dollar following the RBNZ announcement. Sentiment in UK and Europe regarding Brexit and weak economic data continues to play negatively on their respective currencies.