KiwiSaver Investment Market Update – July 2015
Welcome to the July 2015 KiwiSaver Investment Market Update, providing a snapshot of recent financial trends to keep you informed.
Global share markets saw fluctuations due to uncertainties, though a 6% fall in the New Zealand Dollar offset some losses for local investors. New Zealand’s economic indicators signaled a slowdown, impacting share market returns, while local events like potential acquisitions added dynamism. In Australia, positive economic data clashed with negative sentiments from China, affecting market movements. Global bond rates responded to US economic confidence and the Greek loan deadline. Notably, the Reserve Bank of New Zealand unexpectedly lowered the Official Cash Rate amid concerns about falling dairy prices and economic slowdown. Below, we delve into a concise overview of these developments and their implications for investors in navigating the current financial landscape, in particular for their New Zealand KiwiSaver Investment accounts.
Global Shares
Global share markets gave up some earlier gains during June, although for New Zealand investors this was fully offset by a 6% fall in the New Zealand Dollar, which increased the value of overseas investments in NZD terms. Economic confidence levels around the world suggest that overall growth is continuing at around a 3% annual pace – a moderate level on par with the average of the past few years. However, share markets were rattled in June by a lack of agreement on terms for extending the support that Greece has been receiving from organisations such as the International Monetary Fund, which also had some effect on NZ and Australian markets. While this might see an eventual outcome where Greece could leave the Eurozone, looking beyond any short-term volatility policymakers have a number of new tools to help manage this process should it occur while the rest of Europe is in comparatively much better economic shape.
New Zealand Shares
Economic data released throughout the month continued to indicate a slowing rate of growth of the New Zealand economy – dairy prices continued to fall; consumer, business and rural confidence were slightly weaker than expected; and most importantly, growth in GDP over the past year grew at a slower rate. This flowed through to New Zealand sharemarket returns easing off slightly in the month. Despite this, the sharemarket was extremely active in terms of events during the month with a number of potential acquisitions being announced including Freedom Foods’ takeover of A2 Milk, Briscoe Group’s takeover of Kathmandu, and Z Energy’s takeover of Caltex New Zealand. The listed electricity generators also continued to face some uncertainty from an upcoming decision on continuation of the New Zealand Aluminium Smelter at Tiwai, a key user of electricity in the New Zealand market.
Australian Shares
The Australian economy saw a surprising amount of positive economic data during the month, as GDP growth was higher than anticipated, housing starts remained elevated, and unemployment fell more than expected. However negative sentiment out of China weighed heavily on investors, and any companies that provided softer updates were not treated kindly. This led to the wider market declining 5% for the month, but as was the case with global share markets, the fall was offset by currency movements with the Australian market finishing flat in NZD terms. Consumer stocks like Woolworths and Flight Centre forecast lower earnings, and energy companies fell as the global outlook for oil deteriorated. Despite this, though, the health care sector fared well with Sonic Healthcare announcing the acquisition of Medisupport SA, the market leader in Switzerland for pathology services.
Interest Rates
Global bond rates were a story of two halves. Initially rates were led higher by strong US economic confidence which increased the likelihood of the Federal Reserve increasing the Federal Funds rate later this year. However, as the deadline for Greece repaying their loan to the IMF grew closer, global bond rates reversed some of their rise as investors are looked at the likely flow-on effects for central bank policy in other countries outside of Greece. In New Zealand, the Reserve Bank surprised the market by reducing the Official Cash Rate (OCR) earlier than anticipated from 3.50% to 3.25%. Given the falling dairy prices, the low inflationary environment and the slowdown in economic data, the Reserve Bank has cited that further easing to the OCR would be appropriate if emerging data were to weaken further. The market is currently expecting a further two cuts to OCR by the end of the year.
Summary of Market Movements as at 30 June 2015
| Share Markets | 30/06 | 31/05 | 1 Month Return | 3 Month Return | 12 Month Return | 3 Year Return (p.a.) | 5 Year Return (p.a.) |
| NZX50 | 5,727 | 5,845 | -2.0% | -1.8% | 11.4% | 19.0% | 14.0% |
| ASX 200 (local) | 48,602 | 51,325 | -5.3% | -6.5% | 5.7% | 15.1% | 9.7% |
| ASX 200 (NZD) | 55,235 | 55,230 | 0.0% | 4.3% | 11.4% | 10.7% | 8.0% |
| MSCI (local) | 3,531 | 3,636 | -2.9% | -0.5% | 8.5% | 17.1% | 13.9% |
| MSCI (NZD) | 6,929 | 6,738 | 2.8% | 11.4% | 32.0% | 21.4% | 13.7% |
| Fixed Interest Markets | 30/06 | 31/05 | 1 Month Change | 3 Month Change | 12 Month Change | 3 Year Change (p.a.) | 5 Year Change (p.a.) |
| NZ 10-Yr | 3.63 | 3.63 | 0.00 | 0.40 | -0.78 | 0.20 | -1.71 |
| US 10-Yr | 2.35 | 2.12 | 0.23 | 0.43 | -0.18 | 0.71 | -0.58 |
| NZ OCR | 3.25 | 3.50 | -0.25 | -0.25 | 0.00 | 0.75 | 0.50 |
| Currencies | 30/06 | 31/05 | 1 Month Change | 3 Month Change | 12 Month Change | 3 Year Change (p.a.) | 5 Year Change (p.a.) |
| NZD vs. USD | 0.6762 | 0.7115 | -5.2% | -10.9% | -29.5% | -5.9% | -0.3% |
| NZD vs. AUD | 0.8799 | 0.9293 | -5.6% | -11.5% | -5.4% | 3.8% | 1.5% |
| MSCI Weighted NZD | -5.7% | -11.9% | -23.5% | -4.3% | 0.3% | ||
| Commodities | 30/06 | 31/05 | 1 Month Change | 3 Month Change | 12 Month Change | 3 Year Change (p.a.) | 5 Year Change (p.a.) |
| CRB Index | 227.2 | 223.2 | 1.8% | 7.2% | -26.3% | -7.2% | -2.6% |
| Oil | 63.6 | 65.6 | -3.0% | 15.4% | -43.4% | -13.4% | -3.2% |
| Gold | 1,172 | 1,189 | -1.5% | -1.0% | -11.4% | -9.9% | -1.2% |
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