Selected Market Indicators for Periods Ended 30 April 2020
Despite the ongoing global pandemic, markets delivered sharply positive returns in April. US equity markets had their best performance since 1987, while the prospect of the gradual re-opening of various economies sustained the rally in risk assets off their March nadir. Market sentiment remained more focused on the eventual rebound rather than the economic pain in the interim, with both large drops in global GDP and drastic increases in unemployment expected before any true return to normality.
The MSCI World Index finished up +10.5% (+6.6% in unhedged NZ dollars), while Emerging Markets were up +8.8% (+4.9% in unhedged NZ dollars). New Zealand Equities (+7.5%) and Australian Equities (+8.8%) followed the trend of their global counterparts, while Global Listed Property (+6.1%) and Infrastructure (+7.1%) made up some of their losses of the first quarter. Bonds were up over the month, with NZ (+2.3%) outperforming global (+1.6%) bonds as credit spreads narrowed over the month.
An estimate of the Balanced Fund gross index return based on selected market indicators for April is +4.6%.
Significant developments include:
- The coronavirus, SARS-CoV-2, continued to spread, with confirmed cases surpassing 3 million at month-end. The flow-on effect from the pandemic-induced economic slumber continues to become pronounced, notably in unemployment data. Over the past decade, the US economy created over 22.8m jobs – within the past six weeks, the coronavirus pandemic has erased all of these gains and more.
- The actions of the US Federal Reserve continued to buoy markets, implementing another round of emergency policy measures with up to $2.3t in loans to small to mid-sized businesses. The RBNZ unveiled a Large Scale Asset Purchase programme – a commitment to purchase $30billion of New Zealand Government Bonds as part of its QE programme. Moreover, RBNZ Governor Adrian Orr’s comments over the month reitereated that a negative OCR could not be ruled out.
- US crude oil prices made history in mid-April, with West Texas Intermediate (WTI) crude oil futures turning negative for the first time. The demand for crude contines to plumment, and a landmark deal between OPEC and its allies to cut production by record levels has failed to stop the slide in crude prices.
Trans-Tasman equities staged a strong performance over April, with the NZ and Australian markets up +7.5% and +8.8%, respectively. Both markets took solace in the positive readings surrounding the coronavirus as new cases flattened, while fatality rates remain far below the global average. Over the past year, NZ equities are up (+6.1%), whilst their Australian counterparts are in the red (-9.1%).
Developed equities were up +10.5% in local currency over the month, as flattening infection curves in leading economies promopted increased investor risk appetite. A large share of the recovery was driven by a small group of favoured companies, notably in the US and exemplified by the resurgence of the tech-heavy Nasdaq. Emerging market equities were up +4.9% in unhedged NZ dollars.
Property and Infrastructure
Global listed property (+6.1%) and infrastructure (+7.1%) recovered some ground in April as investors flocked back to risk-on asset classes, while both sectors benefitted from the prospect of the re-opening of various economies. Both sectors continue to lag the majority of developed equity markets over the past 12 months.
NZ Bonds and Cash
NZ composite bonds (+2.3%) were up over April, with credit spreads narrowing and yields dropping; the NZ 10-year bond yield ended April sharply lower at 0.79%. Despite the notable equity rally over April, the 12-month performance of NZ composite bonds remains higher than that of the majority of equity markets.
Global Aggregate Bonds (+1.6%) had a positive month, with corporate bonds (+4.5%) outperforming government bonds (+0.9%). Credit spreads, which widened significantly in March, started to come back over the month as pandemic-induced investor fear retracted. The US 10-year ended the month at 0.64%.
The New Zealand dollar strengthened against most major developed currencies over April. The largest movements were felt against the US dollar (+4.1%), Japanese yen (+3.1%) and euro (+4.2%) as investor risk sentiment tilted in favour of riskier currencies such as the NZ dollar.
11 May 2020