Selected Market Indicators for Periods Ended 30 June 2022

Global share markets suffered another negative month as a slight rebound experienced at the end of May faded. Aggressive rises in interest rates by central banks around the world continued to tighten the market environment and signs of an economic slowdown continued to mount – fueling concerns that central banks could be hiking into an economic recession.

Global shares had a poor month as persistent inflation, alongside large rate hikes by central banks, across the world continues to permeate negative sentiment. The MSCI World Index was down 7.8% (in local currency), while the tech heavy NASDAQ 100 fell 9%. The MSCI Emerging Markets Index fared better, falling 2.3% over the month and was sustained by news earlier in the month that China may ease its current lockdown restrictions.

While the New Zealand market performed better than its global counterparts, on the back of strong earnings and the nature of its dividend paying constituents. New Zealand shares broadly fell on the last trading day of June 2022, with the NZX50 ending the month down 3.8% and falling 16.3% since the start of the calendar year.

Global Listed Infrastructure has been one of the better-performing asset classes so far this year, benefiting from energy exposure, while Real-Estate Investment Trusts have posted negative returns. Both should do better if Russia/Ukraine hostilities subside, the pandemic recovery resumes and inflation concerns continue.

Globally, Government bonds have been hit as markets moved to price in aggressive interest rate rises by global central banks. Markets now expect interest rates to rise to 3.4%, 3% and 1.6% in the US, UK and Europe, respectively, by next year. The US 10-year treasury yield broke above 3% before reversing course and ending the month at 2.97%.

Significant developments for June included:

• The US Federal Reserve raised interest rates by 75 basis points (0.75%) during May, in an attempt to curb high inflation readings and reduce inflation down towards its goal of a sustained inflation rate of 2%. The increase represented the largest hike since November 1994, causing a rapid revaluation in fixed interest markets as the magnitude of the hike was considered highly unlikely only a few days prior to the announcement.
• President Joe Biden is planning to remove tariffs on Chinese consumer goods, however US-China ties look set to remain tetchy even if some levies are scrapped with American officials lobbying the Netherlands to bar ASML (a semi-conductor company) from selling some of its older deep ultraviolet lithography (DUV) systems to China. DUV is essential in making a large chunk of the world’s microchips.
• Officials launched mass testing for COVID-19 in nine districts of Shanghai after detecting cases recently, fueling concerns that China’s financial hub may once again find itself locked down in pursuit of COVID-Zero. The city of 25 million people recently emerged from a brutal two-month lockdown that took an enormous toll on residents and the economy.
• The Reserve Bank of New Zealand (RBNZ) released details of how it plans to sell-down its stockpile of government bond holdings acquired through its Large Scale Asset Purchase programme. In July, the RBNZ intends to begin selling government securities back to the Treasury Department’s debt management office at a rate of NZ$5 billion per fiscal year. New Zealand bond yields rose across the curve, with the 10-year yield jumping to a 7-year high of 3.89%.