Selected Market Indicators for Periods Ended 30 November 2019

November was another positive month for developed equity markets, encouraged by reported progress on trade negotiations between the US and China. European economic woes also enjoyed a reprieve, with US President Donald Trump deciding against following through with tariffs on European cars by his mid-November deadline. The odds of a no-deal Brexit dropped sharply after Prime Minister Boris Johnson withdrew objections to a customs border in the Irish Sea. Johnson has promised to reintroduce his Brexit deal to Parliament before Christmas, subject to a positive outcome in the 12 December UK general elections.
 
Developed Market Equities had a strong month, with the MSCI World Index up +3.2% in local currency (+2.7% in unhedged NZ dollars). New Zealand Equities (+5.0%) rebounded from falls in October, boosted by positive trade developments and signs of an Auckland property market revival, while Australian Equities (+3.3%) performed in line with global peers. Global Listed Property (-0.9%) and Infrastructure (-0.8%) both declined, losing value as bond yields rose over the month. This also weighed on NZ (0.0%) and Global (-0.2%) Aggregate Bonds over the month.
 
An estimate of the Balanced Fund gross index return based on selected market indicators for November is +1.5%.
 
Significant developments include:
 
 

• The Reserve Bank of New Zealand (RBNZ) left the Official Cash Rate (OCR) unchanged on 13 November, citing that recent reductions were still transmitting through the economy. Despite this, the RBNZ has not ruled out further cuts should economic developments warrant.
• Other major central banks also left monetary policy unchanged. Within emerging markets, 7 countries lowered their policy rates in November. This included China, which cut its short term funding rate for the first time since 2015 in response to a slowing economy.
• Germany’s economy grew by +0.1% in the third quarter, narrowly avoiding a technical recession after a -0.2% fall in Q2. Upbeat consumer spending data, better than expected export figures in September and the back down on US trade tariffs all contributed to the positive result.
• Global debt has reached a record level of $250 trillion (320% of GDP) while emerging market debt increased to $71.4 trillion (220% of GDP) according to the Institute of International Finance. China accounts for about 40% of the global debt increase since the global financial crisis.

 
Trans-Tasman Equities
 
The NZ (+5.0%) and Australian (+3.3%) share markets both performed strongly, edged on by accommodative trade conditions. Domestically, a recovery in Auckland property prices helped leading retirement village operators to post strong returns. The NZ share market is now sitting at its highest annual return in nearly twenty years.
 
Global Equities
 
Developed equity markets (+3.2%) took heart from the constructive trade rhetoric from Chinese and US diplomats, with US stocks benefitting most. Better than expected growth from leading Eurpoean companies further helped to push global markets higher. Emerging markets (+0.6%) also gained – but were weighed down by weak returns from China A-shares and Brazilian stocks.
 
Property and Infrastructure
 
Global listed property (-0.9%) and Infrastructure (-0.8%) both fell over the month. These high-yielding defensive sectors are very sensitive to interest rate movements, and consequently suffered losses as market uncertainty eased and upward pressure on global bond yields increased over November.
 
NZ Bonds and Cash
 
NZ composite bonds (0.0%) were flat over the month, with investor preferences favouring equities in light of positive headlines. The NZ 10-year bond yield finished the month at 1.29%, largely unchanged from the end of October. In contrast, the Australian 10-year finished November at 1.03%, 11 basis points lower than the prior month.

Global Bonds
 
Global aggregate bonds (-0.2%) moved in a similar fashion to the month prior, delivering a negative return for the third straight month. Corporate bonds outperformed government bonds as credit spreads narrowed over the month. US Treasury yields continued to rise over the month, touching 1.94% before ending the month at 1.78%, slightly higher than October’s month-end.
 
Currency
 
The New Zealand dollar strengthened against most major currencies in November, supported by an upward revision in third-quarter local GDP and the decision by the RBNZ to leave rates on hold. The largest movements were felt against the AUD (+2.0%) and JPY (+1.4%), whilst the NZ dollar held its value against the USD (+0.1%), which also strengthened over the month.