Selected Market Indicators for Period Ended 31 October 2019

October delivered another positive month for global markets, with global equities rising and bond yields inching higher.

Despite investor confidence sliding and a cooling US economy, the continuation of rate cuts from leading central banks prolonged a feeling of cautious optimism, further augmented by planned meetings between US and Chinese diplomats and the development of positive Brexit dialogue.

Developed equity markets embraced such news, as the MSCI World Index returned +1.9% in local currency (+0.3% in unhedged New Zealand dollars). New Zealand equities (-1.2%) moved in reverse to their global peers, dragged down by negative headlines surrounding leading energy retailers. Australian equities moved in a similar fashion, down -0.4%. Global Listed Property (+1.8%) had a strong month, whilst Infrastructure remained static (0.0%). Global Aggregate Bonds (-0.2%) delivered negative returns over the month as bond yields continued to creep higher from their Q3 lows.
 
An estimate of the Balanced Fund gross index return based on selected market indicators for October is -0.1%.
 
Significant developments include: 
 

• The United States Federal Reserve cut the target range for the Federal Funds rate to 1.50%–1.75%, the third cut this year.
• Hong Kong slipped into a recession for the first time since the Global Financial Crisis, following months of political disruption and adverse effects from the US-China trade war. GDP fell 3.2% in the third quarter.
• The US added 128,000 non-farm payrolls in October, down from the 180,000 in September, but ahead of expectations; this was in contrast to the weakest growth in consumer spending in six months. Despite this, the US stock market pushed to a record high by month-end.
• The European Central Bank (ECB) left rates on hold in October, amid continued adverse economic data in the region.

 
Trans-Tasman Equities
The NZ share market (-1.2%) delivered negative returns over the month as energy retailer share prices slid over the period. Across the Tasman, the ASX 200 fell (-0.4%), driven by investor concerns over the performance of major Australian banks. 12-month returns for both indicies remain above the majority of their global equity counterparts.
 
Global Equities
Developed equity markets (+1.9%) were encouraged by the reprieve in trade tensions coupled with continuing dovish major central bank policy. Emerging markets pushed higher, edged on by rate cuts in Russia and Brazil. 12-month returns for both developed and emerging equities are now sitting in the double-digits.
 
Property and Infrastructure
Global listed property had a notably strong month, up +1.8% as investors continue to favour the high-yielding defensive characteristics of property. In contrast, infrastructure (0.0%) was unchanged. Over 12-months both asset classes are outperforming nearly all of their equity peers, up +19.6% and +19.9%, respectively.
 
NZ Bonds and Cash
NZ composite bonds (-0.7%) delivered negative returns as investor risk appetite favored growth assets over the month. The NZ 10-year bond yield finished the month at 1.31%, a 22 basis point rise from one month earlier. The Australian 10-year followed a similar trend, gaining 12 basis points to finish October at 1.14%.
 
Global Bonds
Global aggregate bonds slipped marginally lower over the month (-0.2%), with yields continuing their gradual trend upwards. Corporate bonds (+0.3%) outperformed government bonds (-0.5%), with government bonds shedding value as markets took a pause in pricing-in recessionary fears. US Treasury yields ended the month at 1.69%, treading water to end the month virtually unchanged.
 
Currency
The New Zealand dollar strengthened against most major currencies throughout October, as easing monetary policy abroad strengthened the relative value of the NZD. The largest movements were felt against the JPY (+2.3%) and USD (+2.3%), as weakening US economic data and investor shifts away from safe-haven currencies bolstered the NZD.