Selected Market Indicators for Periods to 31 May 2022

Global share markets experienced another difficult month, as markets continued to digest a fast changing economic environment. With weaker than expected global activity in April, the sentiment carried over into May. Questions around whether central banks across the world would continue increasing interest rates to control inflation amid slowing economic conditions and heightened risks of recession are impacting the sentiment.

Global shares had a poor start to the month with US stocks dipping briefly, however recovering towards the end of the month as oversold conditions saw buyers return. Considerable negative sentiment appears to be priced into shares markets at the moment, and any positive surprises may help support sentiment, including a pause in rate hikes or softer inflation figures.

New Zealand shares did not fare as well as Global shares over the month, with the NZX 50 down -4.8%. Multi-decade high inflation and subsequent rate hikes by the RBNZ have put pressure on borrowers and dampened the economic growth outlook in New Zealand, particularly for homeowners.

Global Real Estate Investment Trusts had another negative month as rates continued to rise across the world, impacting financing costs which outweighed any benefit from the sector’s natural hedge against inflation. Infrastructure managed to perform better than its property counterpart, generating positive returns for the month.

New Zealand Government Bonds were able to squeeze out a gain amidst the Reserve Bank of New Zealand (RBNZ) implementing a 0.50% rate hike, taking the Official Cash Rate (OCR) to 2%. Inflation protected bonds performed the poorest over the month, down -1.7% as expectations increase that the RBNZ’s substantial rate hikes would bring inflation under control.

Significant developments for May included:

• After reiterating that they were not in a rush to hike rates, the Reserve Bank of Australia (RBA) announced that they would lift the Cash Rate Target by 0.25% to 0.35%, the first rise since 2010. The RBA reasoned that “inflation had increased to its highest rate in many years”, up to 5.1% over the year and now forecast to peak at a higher rate around 6%.
  
• Davos, synonymous with hosting the World Economic Conference, was inundated with condemnations of Russian President Putin’s attack on Ukraine, overshadowing issues such as inflation and recessionary fears. German Chancellor, Olaf Scholz, stated that “Putin underestimated the unity and vigor with which the G7, NATO and the EU would respond to his aggression” and that the sanctions imposed “are tougher and further reaching than any previously imposed on a country of Russia’s size”.
• China struggled in containing the spread of Covid-19, with Shanghai remaining in lockdown for the majority of May, with officials slowly easing restrictions in early June. However, officials stated that they will continue with their zero-Covid strategy for years, with a chance of ‘permanent infrastructure’ being implemented in order to facilitate zero tolerance. Under this infrastructure, cities such as Shanghai, Beijing, Shenzhen and Hangzhou would require citizens to tests as often as every 48 hours, with negative test results needed to get into stores and on subways.