Selected Market Indicators for Periods Ended 31 March 2021

Global equities remained strong through March with the global vaccine rollout giving investors confidence in the year ahead, with the MSCI World Index returning 7.3% in unhedged NZD (4.2% in local currency). ‘Value’ stocks took centre stage during March with the MSCI World Value Index returning 9.8% (unhedged NZD), as investors started to question high valuation premiums placed on certain growth equities, and looked to companies that would benefit from the reopening of economies as vaccination rates increase. The MSCI World Growth Index returned 4.7% in unhedged NZD.

Small caps also performed strongly in March, returning 6.0% in unhedged NZD (3.1% in local currency). Trans-Tasman Equities has a positive month with New Zealand equities returning 2.9%, while Australian equities did even better returning 4.6%. The US Dollar experienced some weakness going into March, however regained its strength towards the end of the month, with the U.S Dollar Index (DXY) gaining 0.67%. This strength can be attributed to rising bond yields in the US with the 10-year government bond yield rising to 1.75% up from 1.46% at the start of the month. An estimate of the Balanced Fund gross index return based on selected market indicators for February is 2.2%.

Significant developments during the month include:

• United States President Joe Biden unveiled an USD2.25tn US infrastructure plan, dubbed as the “American Jobs Plan”. The eight-year programme will allocate USD620bn to transportation, USD580bn to American manufacturing, USD650bn to initiatives such as cleaner water and broadband and USD400bn towards care for the elderly and disabled.
• Archegos Capital Management, a family office run by Bill Huang, caused major disruption to many financial institutions as prime brokers were forced to liquidate positions after Archegos failed to meet one of the largest margin calls in history. Archegos managed to build up leveraged positions with an estimated gross position around USD100bn. JPMorgan has estimated total losses across the financial institutions that lent to Archegos to be in the region of USD5-10bn.
• A container ship called the ‘Ever Given’ was freed after being lodged in Egypt’s Suez Canal for six days, showing the world how dependant global trade is on such a fragile piece of infrastructure. The blockage is estimated to have held up USD400m an hour in trade (Source: Lloyd’s List). The alternative trade route between Europe and Asia requires travel around Africa, adding an estimated USD300,000 in fuel costs and 10 days to the journey.

Trans-Tasman Equities

Trans-Tasman equities reported positive results over the month, with New Zealand and Australian equities returning 2.9% and 2.4%, respectively. A strong rebound in demand for commodities such as iron ore contributed to positive returns in Australia, while New Zealand markets were buoyed by the prospects of a “Trans-Tasman travel bubble” and its economic benefits.

Global Equities

Global equities returned 4.2% in March as considerable fiscal and monetary policy continue to support the worldwide economy. Market participants continued to rotate from ‘growth’ to ‘value’ stocks during the month in an effort to benefit from the “reflation trade” (companies expected to benefit the most from a strengthening economy as a result of increasing vaccination rates).

Property and Infrastructure

Global Property and Global Infrastructure sectors had a positive March, returning 4.0% and 8.0%, respectively. Amongst the hardest hit sectors as a result of the pandemic, Global Property and Infrastructure were spurred by President Biden’s announcement of a significant USD2.25tn stimulus aimed at rebuilding and supporting American infrastructure.

NZ Bonds and Cash

Domestic bonds performed positively in March as investors found value after a period of rising yields. Government bonds returned 0.7% while corporate bonds returned 0.2%. The NZ 10-year bond yield finished March at 1.78%, down from 2.02% a month prior.

Global Bonds

Bond yields continued to rise as inflation concerns and market expectations of the resulting monetary policy response dampened interest in bonds. The US 10-year yield closed March at 1.74%, up from 0.91% at the start of the year. Similar patterns have emerged in Asia and Europe, with the Singapore 10-year and France 10-year yields rising towards pre-pandemic levels.

Currency

The NZD was down against the EUR, GBP and the USD in March, returning -0.5%, -2.4% and -3.7%, respectively, after performing strongly over the past year. The NZD continued its weakness against the AUD, down -2.1% as the AUD strengthened as a result of strong demand for their commodities.