Selected Market Indicators for Periods Ended 31 October 2020

Equity markets failed to find their footing following the turbulence of September, with most major indices experiencing outflows throughout October. The sustained risk-off global sentiment was attributed to the ramping-up of the highly anticipated US election and recent surge in new daily Covid-19 cases, with the consequent re-imposition of stringent quarantine measures, predominantly in Europe, weighing on global economic data. Safe haven assets continued to see inflows as investors looked to shelter from elevated volatility and increased downside risks.
 
The MSCI World Index fell -3.1% over the month in both unhedged NZ dollars and local currency, while Emerging Markets were up +2.1% (in unhedged NZ dollars). Domestic equities outperformed (+2.9%), rebounding strongly after their September losses, with New Zealand’s open economy spurring a strong uptick in domestic business confidence. Bond markets were broadly level across the month, with domestic bonds losing -0.1%, while global bonds were flat (0.0%).
 
An estimate of the Balanced Fund gross index returns based on selected market indicators for October is -0.4%.
 
Significant developments include:

• Renewed national lockdowns in Europe following a resurgence in Covid-19 cases acted as a catalyst for various economic downgrades over the month, with the Eurozone economy now expected to shrink by -2.3% in the fourth quarter of this year.
   
• Volatility remained elevated throughout October, in anticipation of the US presidential election campaign on 3 November. After a drawn-out process, Democratic nominee Joe Biden was announced the winner with a small majority over the incumbent President Donald Trump.
   
• On November 3, the Reserve Bank of Australia (RBA) further lowered its cash rate target to 0.10% (a -0.15% reduction) and reduced the target for the yield on 3-year Australian Government Bonds to around 0.10%, citing the need for further supportive measures for job creation and to aid the domestic economic recovery.
   
  Trans-Tasman Equities 
  New Zealand markets saw strong returns in October following a difficult September, with the NZX50 gaining +2.9%. Australian equities were also buoyant over the month, with the S&P/ASX 200 returning +1.9%. The ASX continues to lag its Trans-Tasman counterpart over the past year due to struggling commodity prices, squeezed banking profit margins, and geopolitical tensions with China.
  
  Global Equities 
  Global equities were down -3.1% in local currency as the resurgence of Covid-19 brought Europe to a standstill and delivered record numbers of new cases throughout the US. The month was bleak, delivering losses to most major indices, while Emerging Markets continued to outperform returning +2.1% in unhedged NZ dollars.
   
  Property and Infrastructure
  Global listed property moved broadly in line with its equity peers, down -3.3%. Infrastructure was also negative (-0.6%), albeit to a less degree than its property counterpart. Both property and infrastructure continue to struggle in the post-Covid environment as a re-imposition of various lockdowns weight on consumer and industrial activity.
   
  NZ Bonds and Cash
  Government bonds (-0.2%) underperformed corporate bonds (+0.1%) in October, with the NZ composite index returning -0.1%. The NZ 10-year bond yield finished higher at 0.51%. The return for cash remained flat as rates remained at record lows.
   
  Global Bonds
  Global corporate bonds (+0.1%) outperformed government bonds (-0.1%) in October, while the global aggregate index was flat (0.0%). The one year return for global bonds remains robust as investors favour defensive assets in light of geopolitical tensions and the resurgence of the global pandemic.
   
  Currency
  The New Zealand dollar strengthened against the Australian dollar (+2.0%) and euro (+0.7%) over the month, whilst depreciating against the Chinese Renminbi (-1.3%). The decline was attributed to strong PMI data out of the Chinese manufacturing industry, rising from 53.0 to 53.6, representing the highest business confidence level since 2014.