Selected Market Indicators for Periods Ended 30 June 2020

Global equity markets extended their remarkable quarterly gains throughout June, with the NASDAQ touching record highs as FAANG (Facebook, Amazon, Apple, Netflix and Google) stocks continued their recent price surge. Government bond yields decreased modestly as investors re-trained their focus on the economic fallout of the virus, on the back of rising infection rates in large economies such as the US, Brasil and India. Oil had a positive month, finishing up +16.5% for the period as economic activity started to show signs of returning, albeit from very depressed levels and despite a backdrop of rising infections. Gold markets saw continued inflows during June, touching spot prices not seen since February 2012, while central banks around the world maintained supportive monetary policies to soften the economic impacts inflicted by the virus.
 
Emerging Markets outperformed during the month, finishing up +6.6% (+3.3% in unhedged NZ dollars), ahead of the wider MSCI World Index which finished up +2.4% (-1.3% in unhedged NZ dollars). New Zealand Small Caps (+7.3%) lead the NZX50 (+5.3%) with Australian Equities (+2.6%) rising at a more modest rate. Global Listed Property (+1.6%) was up, while Infrastructure (-2.5%) declined. Credit markets were a mixed bag with NZ Bond (-0.3%) returns down while Global Bonds (+0.5%) were positive.
 
An estimate of the Balanced Fund gross index return based on selected market indicators for June is +1.0%.
 
Significant developments include:
 

• Global cases of Covid-19 topped 10 million, with over 500,000 deaths at month-end, as the rate of new cases continued to increase in many parts of the world. Despite the number of new cases showing signs of flattening in the US over May, the trend sharply reversed in June with a significant increase in cases across Southern and Western States, while Brasil, Russia and India also saw rapid upticks.
   
• The Federal Open Market Committee (FOMC) commenced its purchases of corporate bond ETFs via its Primary Market Corporate Credit Facility, and has indicated that current policy rates (0.00% - 0.25%) will remain in place for the foreseeable future. The FOMC also formalised its QE programme ($40bn in purchases per month of both UST and mortgage backed securities) and, contrary to market expectations, indicated that yield curve control (where the Fed effectively caps long term interest rates) is unlikely to be implemented in the near future.

 
Trans-Tasman Equities
Trans-Tasman equities had another positive month, with NZ and Australian equities up by +5.3% and +2.6%, respectively. Domestically, a successful transition to Alert Level 1, combined with continued low numbers of new virus cases has buoyed investor sentiment in New Zealand, while a surge in new virus cases in Victoria has weighed on Australian markets.
 
Global Equities
Developed equities were up +2.4% in local currency, as economic data displayed gradual signs of improvement. Although US jobless claims remain high, payroll employment data rose above concensus estimates. Global governments and central banks continued to provide fiscal and monetary support, both in developed and emerging economies, offsetting a large degree of the real economic fallout.
 
Property and Infrastructure
Global listed property (+1.6%) was relatively unchanged over the month, while infrastructure (-2.5%) declined in light of renewed uncertainty as new Covid-19 cases resumed their uptrend, and the prospect of a rapid return to normality looked increasingly less likely. Property and infrastructure reported gains of +7.9% and +8.5% for 2020 Q2.
 
NZ Bonds and Cash
Corporate bonds (+0.1%) outperformed government bonds (-0.6%) over June, with NZ composite bonds (-0.3%) also posting a decline. The NZ 10-year bond yield at the end of June was at 0.91%, up from 0.78% at the end of May.
 
Global Bonds
Corporate bonds (+1.8%) also outperformed government bonds (+0.3%) in offshore markets, with the global aggregate index returning +0.5% for the month. Credit spreads continued to narrow during June as confidence returned to bond markets, boosted by better-than-expected payroll employment data and supportive monetary policy. The US 10-year bond yield ended June at 0.66%, largely unchanged from a month earlier.
 
Currency
The NZ dollar gained against nearly all major currency pairs. The NZ dollar strengthened +2.0% against the Trade Weighted Index of currencies over June, with other notable movements against the British pound (+4.0%), Japanese yen (+4.1%), Euro (+3.0%) and US dollar (+4.0%). The NZ dollar also held its ground against the Australian dollar (+0.2%) over the month.