Selected Market Indicators for Periods Ended 30 June 2021

Global Equities finished the month in positive territory after what was one of the strongest starts to the year since the Dot Com bubble in 2000 (that was caused by excessive speculation of Internet related companies, where investors pumped money into them hoping to turn a profit, which drove up equity markets). According to the Financial Times, during the first half of 2021, Global Equity funds saw more investment than the previous 20 years combined, which is a pretty incredible feat considering the strong returns in the sector last year. Contributing to this strong growth in Global Equities was an extremely positive performance by the US share market (S&P 500), which reached a new all-time high in June, finishing the month up 2.3% and an impressive 15.3% from January 2021. Global Bonds were also mildly positive across the month with Global Corporate Bonds up 0.3% and Global Government Bonds up 0.1%.

The local NZX 50 continues to lag its overseas counterpart’s quite considerably; this has been driven by extensive devaluations in some of the index’s larger constituents, such as a2 milk and a decrease in appetite for dividend paying companies (in sectors such as utilities, telecommunications and real estate investment trusts (REITs)), in the face of rising inflation and interest rate expectations. The NZX 50 returned 2.8% over June, its second strongest monthly return for the year behind April’s 2.9% rise. Year to date the NZX 50 lags the global developed equity market index (countries such as US, UK) MSCI World, by a considerable 19.8%.

Significant developments for June included:

• US President Biden’s proposed infrastructure deal, which aims to inject US $1 tn into a raft of infrastructure projects, from roading to high speed interent, looked to make positive headway when he announced a deal had been struck between Democrats and Republicans. It is detailed that a group of senators from both parties agreed on an estimated $1tn bipartisan infrastructure spending plan. The plan still faces an uphill battle as Biden has stated he will not sign the deal if congressional Democrats didn’t also pass a separate reconciliation bill enacting the rest of his agenda.  If the bill is successful it will result in a massive increase in investment in to US infrastructure which would benefit Mercers Infrastructure fund.
• Early announcements from US Federal Reserve (Fed) Chair Jerome Powell appeared to make mention to an openness to discussing the reduction of supportive monetary policy (low interest rates and bond buying programmes to stimulate the economy). This caused the value of equity and bonds to fluctuate quite a bit in the middle of the month. Equities recovered towards the end of the month following Powell’s dismissal of this perceived openess, stating “we will not raise (interest) rates pre-emptively because we fear the possible onset of inflation, we will wait for evidence of actual inflation or other imbalances”.