Selected Market Indicators for Periods Ended 28 February 2021

Global shares experienced a volatile February but finished broadly positive, as investors were encouraged by the idea of a stronger-than-expected economic recovery in the near future.

Global Bonds, historically known for their low risk properties, saw a rapid devaluing toward the end of February as investors attempted to account for this improved economic outlook and the chance that central banks will look to raise interest rates sooner than previously expected.

The MSCI World Index (an indication on global shares) returned 1.7% over February in unhedged NZD (2.6% in local currency).

The New Zealand share market fell -6.9% in February with energy companies Meridian Energy (-20%), Contact Energy (-16%), Mercury NZ (-15%) and Genesis Energy (-10.7%) leading the wider index lower. Another notable decline was A2 Milk, by -16%, on the back of forecasts for lower margins, higher capital expenditure and on-going distribution issues.

Global property returned 3.8% in February, leading global infrastructure which fell -0.9%. Despite global property performing strongly in February, the sector has been slow to recover from its 2020 decline with uncertainty over the future of commercial real estate continuing to linger. Questions remain about the outlook for the sector under more normal social operating conditions.

Significant developments during the month include:

• The Reserve Bank of Australia (RBA) announced an extension of AUD$100bn to its quantitative easing programme, while indicating that it does not expect to increase interest rates until 2024. The extension will further promote the recovery of the Australian economy.
• The Reserve Bank of New Zealand (RBNZ) is now required to consider the impact on housing when making monetary and fiscal policy decisions, supporting the government’s objective of more sustainable house prices. The RBNZ’s core objectives and mandate remain the same, which is to maintain price stability, support full employment and promote a sound and stable financial system.
• Ex-head of the European Central Bank, Mario Draghi, has been sworn-in as Prime Minister of Italy after its previous administration collapsed. As an economist with experience at the highest levels of the European Union, Draghi is seen as competent and a safe choice for the role.

Trans-Tasman Equities

The New Zealand share market fell -6.9% in February with energy companies Meridian Energy, Contact Energy, Mercury NZ and Genesis Energy leading the wider index lower. Another notable decline was A2 Milk on the back of forecasts for lower margins, high capital expenditure and on-going distribution issues.

Global Equities

Global equities closed February up 2.6% in local currency (1.7% in NZD). Optimism over medium term growth and an ongoing recovery in corporate profits was weighed against concerns over rich valuations and the sharp rise in bond yields at month end. Emerging markets slowed their rally, returning 1.0% in local currency (-0.1% in NZD) after several months of strong returns.

Property and Infrastructure

Global property returned 3.8% in February, leading global infrastructure which fell -0.9%. Despite global property performing strongly in February, the sector has been slow to recover from its 2020 decline with uncertainty over the future of commercial real estate continuing to linger. Questions remain about the outlook for the sector under more normal social operating conditions.

NZ Bonds and Cash

Domestic bonds delivered negative returns as yields continued to rise across the curve (a measure of bond yields across different maturities). 5-year bond yields finished the month at 1.22%, up from 0.39% at the end of January. The NZ 10-year bond yield finished February at 2.02%, up from 1.10% a month prior.

Global Bonds

Global bonds also declined over the month, with the global aggregate index closing down -1.5%. The US 10-year yield accelerated its recent trend upwards, finished the month at 1.45% (after hitting 1.60% earlier in the month), up from 1.09% a month prior, as investors continued to price in a strong growth environment once economies fully reopen and pent-up demand is released.

Currency

The NZ dollar (NZD) strengthened against the Japanese yen (+2.7%), euro (+1.0%), US dollar (+0.9%) and the Trade Weighted Index (+1.9%), while falling against the British pound (-0.9%) and holding flat against the Australian dollar (-0.0%).