Selected Market Indicators for Periods Ended 30 September 2020

Equity markets lost ground in September, bucking their widespread positive trajectory off their pandemic-induced lows. Uncertainties in the form of the upcoming US Presidential election, a resurgence of Covid-19 cases in Europe and the US, and continued international economic weakness all contributed to the pull-back in equity valuations. Safe-haven assets benefitted, with the US dollar and Japanese yen both strengthening against the NZ dollar, as did bond markets as investors sought refuge from market volatility.
 
The MSCI World Index fell -2.9% over the month (-1.3% in unhedged NZ dollars). Domestic equities followed suit, down -1.4%, with local profit weakness compounded by global risk-off sentiment. Bond markets were up as bond yields fell, with both global bonds (+0.4%) and domestic bonds (+0.7%) posting positive monthly returns.
 
An estimate of the Balanced Fund gross index return based on selected market indicators for September is -0.7%. 

Significant developments include: 

• The US presidential election continued to gain momentum, peaking in the first debate between incumbent US President Donald Trump, and Democratic challenger Joe Biden. National polls as at month-end have Biden leading Trump by 7 percentage points, 50 percent to 43 percent. Futures contracts anchored to the Vix Volatility Index (a widespread measure of market fear), suggest the index will surpass readings of above 30 in October and November as uncertainty around the US Presidential election escalates; ‘calm’ markets typically trade below 20. Spreads between spot VIX and futures remain more muted further out on the curve.
   
• The RBNZ continued its commitment to prolonged monetary support, with the Monetary Policy Committee agreeing to continue with its Large Scale Asset Purchase (LSAP) Programme of up to $100 billion, in light of weak underlying domestic and international economic conditions, an expected rise in unemployment, and an increase in firm closures as resource reallocation continues.
   
• Deaths as a result of Covid-19 reached a gloomy milestone by the end of September, with the global tally surpassing 1 million. Confirmed cases topped 33 million, adding over 8 million cases in the month of September alone. 

Trans-Tasman Equities
New Zealand lost ground in September, with the NZX50 down -1.4%, with notable price weakness in index heavyweight a2 milk. A profit warning (driven by the adverse effects of the re-imposition of lockdown in Victoria, Australia on its daigou distribution channels) resulted in a notable -10% drop on 28 September. Australian equities lost -3.7% over the month.
 
Global Equities 
Global equities were down -2.9% in local currency (-1.3% in unhedged NZ dollars) as a ‘second wave’ of confirmed Covid-19 cases was experienced in various nations around the world. Japan was a notable exception, up +0.5% in local currency (+3.3% in unhedged NZ dollars), as were Emerging Markets, which were up +0.6% in unhedged NZ dollars.
 
Property and Infrastructure 
Global listed property (-2.5%) and infrastructure (-0.3%) moved in-line with their equity peers in September, losing value in light of a return to various levels of national lockdowns. Both sectors continue to experience weakness in the post-Covid environment, and have lagged the majority of their equity peers over the past 12 months.
 
NZ Bonds and Cash 
Government bonds (+0.9%) outperformed corporate bonds (+0.4%) in September as investors favoured safer asset classes, with the NZ composite index returning +0.7%. The NZ 10-year bond yield finished notably lower at 0.45%, down from 0.61% from the month prior. The return for cash remained flat as rates remained at record lows.
 
Global Bonds 
Corporate bonds (-0.0%) were flat over the month, underperforming government bonds (+0.8%) in September, while the global aggregate index returned +0.4%. The US 10-year bond yield ended the month lower at 0.65%, decreasing as global sentiment shifted towards a risk-off environment.
 
Currency 
The NZ dollar weakened against the Trade-Weighted Index by -1.1% in September as a risk-off environment returned, with notable weakness coming against the US dollar (-2.2%). The Chinese renminbi had its best quarter since the global financial crisis, aided by a sell-off in the dollar and bets that the worst of the US-China trade war has passed.