Selected market indicators for period ended 30 June 2018

Positive returns in the US and Australia and falls in Europe, Japan and Emerging Markets over the month, resulted in a relatively flat aggregate return from global share markets in June.

US trade negotiations played a major role in wavering market sentiment over the month, as the Trump administration announced a new policy that will restrict inbound investments in an attempt to defend themselves from other countries trying to “steal their technology”. Emerging Markets stocks, which rely heavily on international trade, were hurt most by the uncertainty.

The MSCI World Index returned +0.3% (in local terms) in June, while unhedged investors gained +3.6% over the month. The NZX50 performed in tandem with the ASX 200, delivering +3.4% and +3.3% (in local terms) respectively. Defensive sectors generally benefitted from the recent market uncertainty, with Global and NZ Government bonds returning +0.4% and +0.6% respectively. Global Listed Property and Global Listed Infrastructure rounded off a solid quarter, delivering +2.1% and +2.3% respectively.

An estimate of a Balanced Fund gross index return based on selected market indicators for June is +1.3%.

Significant recent items include:

• In response to the Trump administration’s trade policies, Canada’s Minister of Foreign Affairs confirmed that tariffs on C$16.6bn worth of U.S goods would take effect on 1 July.
• The People’s Bank of China has announced a cut to the amount of reserves required by the country’s banks. This move will free up more than US$100bn in an attempt to aid a slowing economy, and lessen the impact of the Trump administration’s trade policies.
• The European Central Bank announced mid-month that it would slow down its net asset purchases in order to keep inflation in line with its target. The net purchase pace will be halved in September, before the purchase program finishes at the end of the year.
• The US crude oil price rallied over the month, reaching almost $74 per barrel, its highest point since November 2014. The rally was backed by a political move from the US to limit Iran’s ability to export oil, effectively limiting the world oil supply.

Trans-Tasman Equities

The NZX 50 delivered positive returns in June, up +3.4%, benefitting from the markets’ general move towards more defensive high-dividend paying stocks. While Australian shares performed roughly in line with New Zealand over the month, returning +3.3%, the New Zealand share market continues to outpace the ASX over 12 months, the two markets returning +18.9% and +13.0% respectively.

Global Equities

Global equity markets returned +0.3% in June, with several countries losing ground as investors reacted to the latest global trade policies. Perhaps as expected, Consumer Staples was the leading sector over the month, returning +3.1%, while in contrast Industrials and Financials lost the most ground, down -2.1% and -1.3%. Emerging markets lagged developed markets over the month, falling -2.5%.

Property and Infrastructure

Global Listed Property and Global Listed Infrastructure both enjoyed strong returns over the month, rising +2.1% and 2.3% respectively, and lifting year to date returns back into the positive for both sectors. Market uncertainty benefitted the generally defensive sectors over the month, helping them to outperform the broader global equity market.

NZ Bonds and Cash

New Zealand bonds performed well again in June, with Government Bonds (+0.6%), outperforming Corporate Bonds (+0.4%). Over the last 12 months NZ Government Bonds have underperformed Corporate Bonds (4.2% versus 4.5%). Cash continues to deliver modest returns and lag most other asset classes over 12 months.

Global Bonds

Market uncertainty caused by growing trade tensions benefitted defensive Global Government Bonds (+0.4%) while at the same time doing no favours for global corporate bonds (-0.3%) (being more closely linked to the perceived risk of listed companies); Global Aggregate Bonds returned +0.2% for the month. The US 10-year bond yield remained fairly flat over the month, closing at 2.86%.

Currency

The NZ dollar lost ground against all major currencies over the month, with the largest declines against the USD (-3.5%), EUR (-3.5%) and GBP (-2.7%). The NZ dollar was valued at 0.677 US dollars at month end. The trade-weighted index (TWI) fell by -1.2% over the month, ending at 72.5