Selected Market Indicators for Period Ended 30 June 2019

June was a good one for investors with all major asset classes delivering positive returns and equities recovering from the falls suffered in May.

The key catalysts for the rebound in equity markets were the easing of trade tensions between the US and China and confirmation of the dovish outlook for interest rates from major central banks – signalling a commitment to lower interest rates to sustain and promote further economic growth. However, a fair amount of uncertainty remains and many investors continue to seek sanctuary in government bonds.
Developed equity market returns reflected the reversal in market sentiment over the month; the MSCI World Index returned +5.9% (+3.4% in unhedged New Zealand dollars). NZ (+3.9%) and Australian (+3.7%) Equities also performed well. The Global Listed Property (+0.9%) and Infrastructure (+3.1%) sectors trailed the broader equity market despite downward pressure on interest rates. Bond markets also performed well, supported by falling bond yields; NZ and Global Aggregate Bonds returned +0.8% and +1.3% respectively for the month.
An estimate of the Balanced Fund gross index return based on selected market indicators for June is +2.6%.

Significant developments include:
 

• The suspension of recent additional US tariffs on Chinese goods and signs of a lifting of the trade ban on Huawei led to an amicable meeting between US President Donald Trump and his Chinese counterpart President Xi Jinping at the G20 summit in Osaka. The positive trade talks helped allay some market fears of trade war escalation despite a formal trade deal still proving elusive.
• President Trump also dialled back his threat of tariffs on Mexican goods during the month; whilst the news was generally welcome, it also highlights market concerns over the unpredictability of future global trade policy.
• Tensions between the US and Iran flared up when Iran’s Islamic Revolutionary Guard Corps shot down an American surveillance drone. Despite the regional tension, oil prices remained relatively stable.
• The Reserve Bank of New Zealand (RBNZ) left the Official Cash Rate (OCR) unchanged at 1.50%, while the RBNZ Monetary Policy Committee suggested that a lower OCR may be needed if the growth outlook were to deteriorate further.

 
 
Trans-Tasman Equities
 
The NZ and Australian markets were roughly on par with each other over the month, gaining +3.9% and +3.7% respectively. With interest rates abroad nearing record lows, the high-dividend yielding characteristics of the two Trans-Tasman markets retain their attractiveness, particularly to overseas investors. 12-month returns from both markets are comfortably in the double-digits.
 
Global Equities
 
Developed equity markets (+5.9%) benefitted from major central banks assuming increasingly dovish standpoints in an attempt to arrest concerns over slowing global growth and weakening business confidence. Meanwhile, the yo-yo nature of US trade policy continues to fuel market volatility. Emerging markets (+4.6%) also performed well but continue to lag developed markets.
 
Property and Infrastructure
 
The more defensive Global Listed Property and Infrastructure sectors trailed global markets over the month, returning +0.9% and +3.1% respectively (NZD hedged). However, 12-month returns remain ahead of their global equity counterparts (+8.0% and +15.3% respectively), generally benefitting from a softening global growth outlook and lower interest rate expectations.
 
NZ Bonds and Cash
 
NZ composite bonds (a combination of government and corporate bonds) had a positive month, gaining +0.8%. The NZ 10-year bond yield reached a new all-time low of 1.50% during June, before ending the month at 1.57%. The Australian 10-year bond yield followed a similar path, ending June at 1.32%.
 
Global Bonds
 
Global aggregate bonds returned +1.3% as global bond yields continued to trend downwards, with many investors taking heed of slowing economic conditions despite the equity rally. The 10-year US Treasury yield fell further over the month, closing out June at 2.00%, a level not seen since before the victory of Donald Trump in the US Presidential election in November 2016.
 
Currency
 
The NZ dollar gained against most major currencies over the month, notably the US dollar (+3.0%) and the Australian dollar (+1.7%). Tailwinds from the RBNZ statement outlining that a rate cut was not yet necessary, combined with a reprieve from Chinese-US trade turmoil, helped support the NZ dollar in June.