Selected Market Indicators for Periods Ended 31 January 2020
January proved to be an eventful month; after a strong start, culminating in the signing of the phase one deal between the US and China, things turned sour as the coronavirus epidemic emerged and triggered a sell-off in global equity markets in the final week of the month. As the scale of the outbreak of the Novel Coronavirus from Wuhan, China intensified, fears over the potential economic fallout from travel and trade restrictions escalated. Speculation over the impeachment trial of US President Donald Trump did little to ease concerns.
Developed Market Equities had a subdued month, with the MSCI World Index down -0.3% (+3.6% in unhedged NZ dollars). New Zealand Equities (+2.0%) outperformed their global peers, while Australian Equities (+5.0%) had a strong month after a weak end to 2019. Global Listed Property (+1.3%) and Infrastructure (+3.2%) gained, while NZ (+1.5%) and Global Bonds (+1.8%) rebounded as investors became increasingly cautious toward month end.
An estimate of the Balanced Fund gross index return based on selected market indicators for January is +1.6%.
Significant developments include:
- The coronavirus outbreak quickly gained traction towards the end of January, spreading promptly and causing most countries to impose emergency travel restrictions on travellers from China. Equity markets suffered while government bonds rallied as infections were reported in nations across the world. The full extent of the economic fallout from the event will not be known for some time.
- China posted its slowest annual growth in 29 years, with an annual GDP figure of 6.1%. Exports grew at 0.5% for 2019 in dollar terms, down from 10% for the prior year, while imports fell 2.7% over the previous year; the trade war with the US, decelerating income growth, and decreased manufacturing investment were largely to thank for the weaker figures.
- Tensions between the US and Iran reached a tipping point in the first week of the New Year with the assassination of Iranian General Qassem Soleimani. Iran responded, firing missles at a US military base and accidentally shooting Ukraine Airlines Flight 752 out of the sky. While the conflict eased fairly quickly, it did little to calm tensions in a region already contending with wars in Syria and Yemen.
The NZ (+2.0%) and Australian (+5.0%) share markets pushed higher over the month, despite both losing some value in the final week as the threat of decelerating exports to China materialised. Both markets benefitted from weakening local currencies over the month, increasing the value of offshore earnings.
Global equities had a volatile month, up almost 3% at the time of the signing of the phase one trade deal between the US and China, before losing value in the closing week as market fears over the spread of the coronavirus took hold. Both Developed (-0.3%) and Emerging Markets (-3.3%) ended down over the month, the latter falling further courtesy of the higher exposure to Chinese equities.
Property and Infrastructure
Global Listed Property (+1.3%) and Global Listed Infrastructure (+3.2%) both enjoyed exceptional months, gaining as bond yields fell and investors favoured the defensive characteristics of real assets. Both sectors continue to lag the broader equity market over the trailing 12 months.
NZ Bonds and Cash
NZ composite bonds (+1.5%) posted positive returns, with yields falling on the back of heightened risks to the global growth outlook, galvanised by slowing growth in China and threats to international trade and tourism posed by the travel restrictions placed on traffic into and out of China. The NZ 10-year bond yield ended January at 1.30%, a 0.35% drop from the end of December.
A rally swept through bond markets in late January, with Global Aggregate Bonds ending the month up +1.8%. The US 10-year bond yield finished the month at 1.51% (down 0.41% from year end); its lowest level in four months. The German 10-year bund followed a similar pattern, ending January at -0.43%. Investor demand for safe haven assets drove the rally as the coronavirus spread.
The New Zealand dollar weakened against most of its major global counterparts throughout December as macroeconomic risks abroad lead to increased investor demand for ‘safe haven’ currencies. The largest movements over the month came against the US dollar (-4.1%), yen (-4.3%) and the pound (-3.6%). The only exception was the Australian dollar which suffered a similar fate to the NZ dollar, depreciating against its key developed market counterparts over the month.
18 Feb 2020