Selected Market Indicators for Periods Ended 31 July 2020

Global equity markets continued their strong performance in July, with a better-than-expected earnings season in the US and continued fiscal support for households and businesses. Accommodative monetary policies intended to soften the economic impacts inflicted by the virus aided global bond markets, which saw another month of widespread declining yields. Gold rallied further, reaching all-time highs, while the US dollar weakened.
 
Emerging Markets continued to outperform in July, finishing up +5.3% (in unhedged NZD) ahead of the MSCI World Index which closed the month up +3.4% (+1.3% in unhedged NZ dollars). Closer to home, the NZX50 had another positive month (+2.5%), while the ASX200 reported more modest gains of +0.5% (+1.2% in unhedged NZD). Bond markets were strong across the board with both NZ (+0.7%) and Global Bonds (+1.0%) enjoying positive months.
 
An estimate of the Balanced Fund gross index return based on selected market indicators for June is +1.7%.

Significant developments include: 

• EU officials released preliminary estimates showing the Eurozone economy contracted by -12.1% in the second quarter of 2020, capturing the full impact of the pandemic – the largest contraction since records began in 1995. Of the bloc members, Spain experienced the greatest fallout, with GDP plunging by -18.5%, followed by France (-13.8%), Italy (-12.4%) and Germany (-10.1%).
   
• US Congress continued to work towards producing a second stimulus package to support the domestic economy in the wake of Covid-19. The Senate have presented a $1tn package which includes another round of direct stimulus payments to Americans, in addition to extended unemployment benefits. Across the Atlantic, the UK and EU both announced stimulus packages of a further £30bn and €2tn, respectively, which includes the EU’s first common debt issuance to aid member states.

Trans-Tasman Equities
 
New Zealand equities had another positive month, ending the period up by +2.5%, while Australian equities managed to post gains of +1.2% (+0.5% in local currency). A strong rise in iron ore prices has provided a welcome tailwind to the Australian market in light of a return to lockdown in Victoria following a surge in new Covid-19 cases.
 
Global Equities
 
Global equities were up +3.4% in local currency, driven primarily by tech stocks beating earnings expectations and US payroll employment data coming in above consensus estimates. The impact of the pandemic continued to weigh on the UK and Europe during July (-4.5% and -1.5% in local currency, respectively) despite retail sales showing an optimistic rise as lockdowns eased.
 
Property and Infrastructure
 
Global listed property (+1.3%) and Infrastructure (+1.4%) both delivered strong gains over the month, boosted by the passing of a bill in the US offering support for hotels and shopping centres via a government backed funding vehicle. The 12-month return difference for both sectors remained notable, with property underperforming its infrastructure counterpart by -11.4%.
 
NZ Bonds and Cash
 
Government bonds (+0.9%) outperformed corporate bonds (+0.4%) in June, with the NZ composite index returning +0.7%. The NZ 10-year bond yield finished lower at 0.76%, following the global theme of downward-trending yields over the month. The return for cash was flat in light of cash rates remaining near zero.
 
Global Bonds
 
Corporate bonds (+2.5%) outperformed both government (+1.0%) and global aggregate bonds (+1.0%) over the month. Yields across credit markets continued to decrease, while credit spreads further narrowed, aided by continued central bank support and better-than-expected payroll employment data. The US 10-year bond yield ended July lower at 0.55%.
 
Currency
 
The NZ dollar strengthened +3.5% against the US dollar on the back of resurgent virus fears and the increased prospect of US rates staying lower for longer, resulting in its worst month in almost a decade. The NZ dollar also strengthened against the Yen (+1.4%), but declined against the British pound (-2.6%), Euro (-1.7%) and the Australian dollar (-0.7%).