Selected Market Indicators for Periods Ended 31 January 2021

Global equities were broadly positive to start the year, but closed the month negative as a result of weakness towards the end of January. Despite civil turmoil at the Capitol a week earlier, markets were supported by a smooth inauguration of Joe Biden as the 46^th President of the United States and the quick unveiling of a USD1.9tn stimulus package aimed at combating the pandemic and the economic crisis it has triggered.
 
The MSCI World Index fell -1.1% over the month in unhedged NZD (-0.8% in local currency). Emerging Markets continued their recent performance, returning +3.0% in unhedged NZD (+3.8% in local currency), while Small Caps also performed well in January, returning +2.0% (+2.4% in local currency). Domestic equities fell marginally in the last week of January but managed to finish the month up +0.3%, as news emerged of recently quarantined individuals testing positive for COVID-19. Bond markets saw outflows in January with domestic bonds returning -0.4% and global bonds returning -0.6%, while global corporate bonds saw the largest outflows, returning -0.8%. An estimate of the Balanced Fund gross index returns based on selected market indicators for January is +0.1%.
 
Significant developments during the month include:
 

• President Joe Biden announced a USD1.9tn coronavirus stimulus package, including USD160bn to bolster vaccination and testing programmes, and USD1tn in relief to families via stimulus checks of up to USD1,400 and unemployment insurance.
• The US Federal Reserve (the Fed) released its Federal Open Market Committee statement which reiterated its commitment to support the US economy through the pandemic, while noting that economic activity and employment has moderated in recent months, with weakness concentrated in the sectors hardest hit by COVID-19. It was also noted that the path of the economy will likely be driven by the virus, including progress on vaccinations. The pandemic continues to weigh on economic activity, employment, inflation, and poses considerable risks to the economic outlook.
• Shares in GameStop, a retailer of video games and associated products, rose 1,625% to finish January at USD325 per share, up from USD17.25 at the start of the month. The incredible price action was a result of a Reddit group ‘squeezing’ short sellers, who has open short interests at approximately 140% of float. Hedge fund, Melvin Capital Management held a large short position in GameStop, and lost 53% in January, requiring close to USD3bn in additional capital from Citadel and Point72 to shore up its finances.

 
Trans-Tasman Equities
The New Zealand share market provided positive returns over the month, returning +0.3%, with investors reducing risk late in the month as fears of a community outbreak of COVID-19 rose. Australian equities returned +0.3% (in local currency) despite the market encountering significant selling pressure at month end as iron ore prices weakened notably.
 
Global Equities
Global equities returned -0.8% in local currency (-1.1% in NZD), as investors reduced risk towards the end of the month. Japanese equities performed strongly in January, returning +0.4% in local currency (-1.1% in NZD), despite a state of emergency and pandemic restrictions being announced in ten prefectures, including Osaka and Aichi, in response to COVID-19 outbreaks.
 
Property and Infrastructure
Global property returned -0.5% in January, leading global infrastructure, which fell -1.6%. Despite vaccination roll-outs, the sector has remained sensitive to COVID-19 outbreaks around the world. Pandemic restrictions in various parts of the world, including the UK and US, continue to weigh on property and infrastructure.
 
NZ Bonds and Cash
Domestic bonds continued to experience outflows in January, with Corporate bonds (-0.3%) outperforming government bonds (-0.5%). The NZ 10-year bond yield continued to rise during the month, finishing January at 1.10% up from 0.99% a month prior.
 
Global Bonds
Global bonds also declined over the month with global corporate and government bonds both falling -0.8%. The US 10-year bond yield continued its recent trend upwards, finishing the month at 1.09% up from 0.93% a month prior, as continued fiscal and monetary support is expected.
 
Currency
The NZ dollar (NZD) strengthened against the Japanese yen (+1.5%), Euro (+0.8%) and Australian dollar (+0.7%), while falling against the British pound (-0.4%) and the Trade Weighted Index (-0.6%). The NZD ended the month relatively flat (+0.1%) against the US dollar after several months of relative strength.