Selected market indicators for period ended 31 March 2018

March started on a positive note, bouncing back from losses in February.

Volatility returned in the latter half of March, however, as the market grappled with the implications of trade tariffs announced by the US and China, including fears of lower corporate profits and slowing economic growth. Not surprisingly equity markets reacted negatively to the news, falling for the second consecutive month. Traditional safe haven assets like bonds and property rallied as a result, even despite the US Federal Reserve implementing its first interest rate hike of 2018 on 21 March.

Equities across all major markets saw red in March, with large cap developed market stocks leading the falls. The MSCI World Index (in local currency) closed down -2.3% for the month; the unhedged Index closed down -2.1%, cushioned slightly by falls in the NZ dollar against the yen, pound and euro. Property and Infrastructure benefitted from the general risk-off investor behaviour, returning +2.4% and +0.8% respectively. Bonds locally and globally also performed well as yields fell in the latter half of the month.

An estimate of a Balanced Fund gross index return based on selected market indicators for March is -0.3%.

Significant recent items include:
 

• As widely expected, the US Federal Reserve raised its benchmark interest rate to 1.75%; in line with NZ’s Official Cash Rate.
• NZ Finance Minister Grant Robertson and Reserve Bank Governor Adrian Orr signed a new Policy Targets Agreement (PTA) setting out specific targets for maintaining price stability and a new requirement to consider employment outcomes in the conduct of monetary policy.
• US President Donald Trump announced tariffs on steel (25%) and aluminium (10%), plus additional tariffs which will affect US$50bn of Chinese exports, whilst also blocking Chinese takeovers of US companies and seeking restrictions on future Chinese investment in the US.
• Retaliations to the tariffs have varied, with exemptions extended to a number of US allies as a result. China has responded by imposing tariffs affecting a similar level of US exports and announcing it could slow its purchase of US Treasury bonds. The posturing could lead to more productive trade negotiations between the countries, or else risk sparking a trade war between the world’s two biggest economies.
• Vladimir Putin has been re-elected President of Russia. At the same time accusations of Russia-sanctioned assassinations on British soil led much of the world to rally behind Britain and collectively send over 100 Russian diplomats back to Russia.

Trans-Tasman Equities

Returns on the NZX50 were looking positive until the final week of March, when global weakness, and a move by Nestlé threatening a2 milk’s growth prospects in the infant formula market, dragged returns into negative territory (closing the month down -0.3%). Australian shares underperformed global markets as Materials and Financials (both heavily represented in the Australian market) fell sharply late in the month.

Global Equities

Global equity markets were unnerved this month at US President Donald Trump’s announcement of tariffs affecting about 10% of Chinese exports to the US. A Trump twitter attack on Amazon, accusing the online retail giant of tax avoidance, also led to a sell-off in large technology stocks late in the month. As a result, the Materials, Technology and Financials sectors suffered the biggest losses over the month.

Property and Infrastructure

Utilities, Real Estate and Energy were the only listed equity sectors to deliver positive returns over the month, rebounding from heavy falls in February, and contributed to positive returns from Global Listed Property (+2.4%) and Global Listed Infrastructure (+0.8%). These more defensive sectors benefitted from the more bearish (negative) market sentiment that emerged during the month.

NZ Bonds and Cash

New Zealand Bonds performed well in March, with Government Bonds (+0.9%) outperforming Corporate Bonds (+0.3%).  With volatility returning to equity markets, Cash is no longer significantly lagging most other asset classes over 12 months.

Global Bonds

Global Credit underperformed Global Government Bonds significantly over the month as risk-aversion pushed out credit spreads and increased demand for sovereign-issued bonds. The US 10-year bond yield fell from 2.87% to 2.74% during the month, after reaching a mid-month high of 2.91% on 21 March, the same day the US Federal Reserve announced its first interest rate hike of 2018.

Currency

During the month the NZ dollar weakened against all major currencies bar the Australian dollar (+1.5%). The announcement of US trade tariffs generally weakened the US dollar against most global counterparts, the  NZ dollar falling just -0.1% against the US dollar over the month, compared to -0.9% against the euro and pound, and -1.9% against the yen. On a trade-weighted basis the NZ dollar fell -0.3% in March.