Selected Market Indicators for Periods Ended 31 May 2020

Global equities climbed and government bond yields rose as the recovery in investment markets continued throughout May. Investors seemingly brushed aside re-infection risks and political turmoil in the US, banking on a rapid return to economic normality. The VIX index, a measure of expected US equity market volatility and widely considered a gauge of general market fear, dropped to its lowest level since late February, while the MSCI All Countries World Index (a measure of global equity performance) rose to within 10% of its highs touched earlier in the year.

The MSCI World Index finished up +4.7% for the month (+4.4% in unhedged NZ dollars), while Emerging Markets were up a more modest +0.6% (+0.4% in unhedged NZ dollars). New Zealand Equities (+3.3%) and Australian Equities (+4.4%) followed the trend of their global counterparts, while Global Listed Property (+0.1%) and Infrastructure (+3.9%) generally benefitted from the gradual lifting of nationwide lockdowns. NZ (+0.4%) and Global (+0.3%) Bond returns were positive over the month, boosted by a recovery in credit markets.
 
An estimate of the Balanced Fund gross index return based on selected market indicators for May is +2.1%.
 
Significant developments include:
 

• New cases of the coronavirus, SARS-CoV-2, showed signs of flattening over the month in various countries, prompting some to ease lockdown restrictions. Despite this, absolute figures remain high, with global cases above 6 million and more than 350,000 deaths at month-end.
   
• The NZ Government announced a large fiscal bill in the form of the Budget 2020, including a sizeable $50bn relief package to address the fallout from the coronavirus. This is on top of the $12.1bn support package initially outlined in March. Real economic benefits are not expected to flow through immediately, thus improving the speed of the recovery rather than reducing the depth of the downturn.
   
• Domestic monetary stimulus was bolstered over the month, with the RBNZ increasing its quantitative easing (QE) programme from $33bn to a maximum of $60bn over the next 12 months. Likewise, in early June, the European Central Bank (ECB) announced an additional €600bn in bond-buying stimulus, lifting its pandemic emergency purchase programe (PEPP) to €1.35tn.

 
Trans-Tasman Equities
 
Trans-Tasman equities had another positive month, with NZ and Australian equities up by +3.3% and +4.4%, respectively. Both countries are shaping up to be ahead of their developed global counterparts in combating the virus, with both total cases and deaths per capita considerably lower than the rest of the world.
 
Global Equities
 
Developed equities were up +4.7% in local currency, with technology, materials and industrials sectors leading the way. Fiscal and monetary stimulus continued to provide a buttress to market sentiment over the month, despite more adverse economic and social data, including increasing jobless claims and loss of human life. Emerging markets returned +0.6% in local currency terms.
 
Property and Infrastructure
 
Global listed property (+0.1%) and infrastructure (+3.9%) had contrasting months. Property continues to lag the majority of its equity peers amidst heightened uncertainty for the sector. Infrastructure, meanwhile, appeared to benefit from the gradual lifting of nationwide lockdowns in various economies. The margin between the two asset classes over the past 12 months is 16.6%.
 
NZ Bonds and Cash
 
NZ composite bonds (+0.4%) were positive over May, with corporate bonds (+0.8%) outperforming government bonds (+0.2%). The NZ 10-year bond yield treaded water throughout the month, ending May virtually unchanged at 0.78%. Cash returns declined further over the month, amidst growing speculation that the Official Cash Rate could turn negative in the future.
 
Global Bonds
 
Corporate bonds (+1.2%) also outperformed government bonds (-0.1%) in offshore markets, with the Global Aggregate Index returning +0.3% for the month. Credit spreads narrowed over the month as fears of widespread corporate defaults eased, supported by signs of increasing economic activity. The US 10-year bond yield ended May at 0.66%, slightly higher than a month earlier.
 
Currency
 
The NZ dollar gained +1.1% against the Trade Weighted Index of currencies over May, with positive movements against the British pound (+2.4%), Japanese yen (+1.1%) and US dollar (+0.4%). Conversely, the NZ dollar weakened against the Australian dollar (-1.0%) and euro (-1.2%) over the month.