A recent update on markets
Global share markets experienced some sharp falls in the final quarter of the year, and these are likely to be reflected in the performance of many of our investment funds over this period.
We know it can be worrying to see the value of your investments go down, but market falls are part and parcel of investing. Instead, try to focus on what you can control; that is having a long-term investment plan and sticking to it.
While the recent declines may seem big, they come on the back of a record-breaking run in global share markets. Falls in markets can also provide good buying opportunities for active investment managers, such as the team at ANZ Investments.
For the three months ending December 2018
If there was one word that summed up the final quarter of 2018, it would be volatility. Investors don’t like uncertainty, but this quarter provided plenty of it. Against this backdrop, the MSCI World Index finished the period sharply lower, down 12.8% in local currency terms. Technology and consumer-related companies were among the weakest performers.
Trade tensions take centre stage
There was an escalation in trade tensions between the US and China. This was despite a 90-day truce between the two sides on the imposition of further tariffs on each other’s exports. Geopolitics also contributed to the turbulence in share markets. US mid-term elections, Brexit negotiations, the Italian government’s budget blow-out and riots in France over proposed tax increases all kept investors on edge.
A slowdown in company earnings
While companies have, on the whole, continued to report better earnings and profits, they appear to have failed in keeping up with investors’ high expectations. The prospect of a further slowdown in corporate profitability is starting to weigh on investor sentiment.
Meanwhile, the US Federal Reserve again raised US interest rates, and in Europe, the European Central Bank reigned in its monetary support. Low interest rates have previously been supportive of financial markets in both of these regions.
Bonds deliver gains for investors
Against the backdrop of share market volatility and only moderate inflation, most major global bond markets gained ground over the quarter. Bonds tend to benefit from being a ‘safe haven’ in times of volatility and this largely proved to be the case over this period.
New Zealand market
New Zealand shares took their lead from overseas share markets, but proved somewhat resilient given the higher-yielding, more-defensive nature of the local market. Over the quarter, the NZX 50 Index was down 5.8%.
Weaker signals from the economy
Third-quarter GDP (Gross Domestic Product) growth came in weaker than expected at 0.3%, compared to 1.0% in the previous quarter. It’s the slowest quarterly rate in growth in nearly five years and takes the annual rate of growth down to 2.6%. Elsewhere, business confidence remained low, but showed a meaningful lift in its December reading. A net 24% of respondents in the latest ANZ Business Outlook Survey expect general business conditions to deteriorate in the year ahead.
House prices on the up, except in Auckland
House prices continued to climb in November, delivering new record median prices in six regions, as well as a record price for the country as a whole. In fact, over the year, prices rose in 14 out of 16 regions around the country – the only exceptions being Auckland (-1.5%) and Canterbury (-3.3%).
Bonds and kiwi dollar rise
It was not surprising that the Reserve Bank of New Zealand (RBNZ) left New Zealand’s Official Cash Rate on hold at 1.75% throughout the quarter. Against this backdrop, New Zealand bonds delivered gains to investors.
The New Zealand dollar strengthened despite the volatility in financial markets. The kiwi dollar rose 1.8% over the quarter on a trade-weighted basis.