Selected Market Indicators for Periods Ended 28 February 2019

February delivered more good news to investors with most asset classes posting positive returns for the second consecutive month.

In most cases, share market gains over the first two months of 2019 have been sufficient to eclipse the falls experienced in the last quarter of 2018. The US Federal Reserve has reiterated its position that there will be no further short-term interest rate hikes for the foreseeable future, which when combined with signs of easing trade tensions between the United States and China, helped support investment markets over the month.

The MSCI World Index returned +3.3% in local currency terms over the month. The unhedged return was +4.8%, benefitting from a weakening NZ dollar. The NZ (+3.8%) and Australian (+6.0%) share markets performed well, outperforming the developed market index. Emerging markets struggled by comparison, returning 1.1% for the month. The Listed Property and Infrastructure sectors also delivered positive returns. NZ and Global aggregate bond returns remained in positive territory but displayed slightly weaker performances as risk appetites increased and yields stabilised.

An estimate of a Balanced Fund gross index return based on selected market indicators for February is 1.9%.

Significant developments include:
 

• The US Federal Reserve (Fed) has maintained its more conservative approach to US monetary policy. In testimony before the US Senate Banking Committee, Fed Chairman, Jerome Powell commented he was in “no rush” to make a judgment about a change in policy.
• After her Brexit deal was roundly defeated in the House of Commons in January, UK Prime Minister Theresa May has proposed putting forward three separate bills in mid-March; these bills would offer the House a vote on whether it supported another revised deal, an extended Brexit deadline or a “No-deal” Brexit. As the 29 March deadline looms there is also growing support for a second referendum.
• US President Donald Trump, announced that the deadline for implementing a fresh round of tariffs against China (originally set for 1 March 2019) would be pushed back following “substantial progress” from meetings between the two nations.
   

Trans-Tasman Equities
Positive returns in NZ and Australian share markets continued into February. The NZX 50 and ASX 200 Indices rose +3.8% and +6.0% respectively over the month. In Australia, banking shares climbed - along with the wider ASX 200 Index - on the conclusion of the Royal Commission and the assessment that the recommendations would be less damaging than originally expected.

Global Equities
Developed equity markets returned +3.3% in February. Fears that the Fed would continue raising short-term interest rates through 2019 have abated and helped support the rebound in equity prices in 2019. Emerging Markets lagged their developed counterparts, returning +1.1%; rising US interest rates and a strong US dollar have weighed on the sector over the last year.

Property and Infrastructure
Global Listed Property (hedged) and Global Listed Infrastructure (hedged) both delivered positive returns for the month, albeit less impressive than the strong gains in January as investor risk appetite favoured more return seeking assets. The two sectors ended the month up +0.4% and +2.7% respectively.

NZ Bonds and Cash
NZ bonds continued to deliver good returns, up +0.5% in February. The RBNZ kept the Official Cash Rate at 1.75% at its February meeting, and continued to indicate that monetary policy would remain accommodative for the foreseeable future. The New Zealand Cash return was +0.2% for the month.

Global Bonds
Global aggregate bonds returned +0.1% for the month. The gains were driven by Corporate Bonds which finished up +0.4%. Government bonds fell -0.2% as investor sentiment shifted back towards favouring riskier assets. The US 10-year bond yield remained volatile, closing out February at 2.71% (up 0.08%).

Currency
The NZ dollar weakened against the US dollar (-1.7%), pound (-2.8%) and euro (-1.0%) over the month. The relative strength of the US economy compared to New Zealand economy saw a relative weakening in the NZ dollar. Fears over what was seen as a perceived worsening in relations between the New Zealand and Chinese Governments, and potential economic spillover, weighed down further on the NZ dollar.