Investment Market Update – June 2015

Welcome to the June 2015 KiwiSaver Investment Market Update, offering an overview of financial trends to keep you up to date.

In this June market update, global share markets saw substantial gains driven by a notable fall in the New Zealand Dollar. This currency adjustment amplified underlying market rises, particularly for New Zealand investors. However, returns, especially in US shares, has raised questions about sustainability. Despite short term challenges in the dairy sector, New Zealand’s agricultural prospects remain promising due to increasing demand from Asia. The local share market, supported by factors such as migration and low interest rates, demonstrated resilience, with companies like Contact Energy and Nuplex posting notable gains. Meanwhile, Australia’s economy presents a mixed picture, with commodity prices offset by low interest rates and growth in housing prices. As global bond rates rise, investors are monitoring central bank policies closely, while in New Zealand, interventions in housing markets provide room for potential interest rate adjustments.

Market Update

Global Shares Market Update

For New Zealand investors, global share markets gave further strong gains during May.  The main driver of this was a fall in the NZD, as share markets rose at a modest pace in their home currency terms.  The New Zealand Dollar’s fall from 76c to 71c against the US Dollar increased a 1% underlying market rise to 7% once converted into NZD.  On each measure, returns have been very strong over the past few years.  Looking forward, this pace of returns has been higher than we would usually expect, particularly in US shares.  Pleasingly, although data continues to suggest that underlying US economic momentum has moderated somewhat so far this year, jobs growth is still running at a solid pace.  This is supportive of the economy’s ability to continue to grow under its own steam, giving room for central bank support to be gradually removed over time.

New Zealand Shares Market Update

Dairy prices continued to decline in May, which is having a short-term negative impact on the farming sector. However, for New Zealand the long term agricultural opportunities remain, driven by the growing Asian demand for quality food products. While a weaker dairy sector has flow on effects for the wider economy, the NZ share market still added 1% for the month and remains well supported by strong migration, healthy construction activity and historically low interest rates. Contact Energy had a strong month as they announced they would be returning excess cash to shareholders, while Nuplex was up over 20% as they reported strong sales growth across all of their major global markets (Europe, Asia and the US), predominantly driven by lower oil prices, a key input, but also by recovering volumes in global auto sales.

Australian Shares Market Update

The Australian economy remains an interesting mix of weaker commodity prices and slowing household income growth, offset by historically low interest rates and continued growth in house prices. This blend of forces led to a flat return for the wider Australian market for the month, as a strong construction sector was offset by continued pressure on banking sector shares despite their attractive yields. Building approvals remain high thanks to low interest rates and this aided James Hardie to strong full year results, which saw their shares rise 20% during the month. The energy sector also performed well, as Origin Energy was a key beneficiary of Contact Energy’s higher dividend payout. Overall however, all these factors were outshone by the falling NZ dollar against the Australian dollar, with the currency movement giving NZ-based investors a 4% boost to returns.

Interest Rates

Global bond rates rose further from recent lows during the month, with expectations for the United States Federal Reserve to lift its Federal Funds Rate later this year. In New Zealand, the Reserve Bank (RBNZ) and NZ Government introduced housing and loan policies targeting the Auckland region and overseas property investors, to help slow down rising Auckland house prices.  This gives the RBNZ more flexibility to potentially cut interest rates, and they are keeping a careful watch on the upcoming economic data to see if domestic demand slows or inflation expectations fall further, which could prompt a decrease to the Official Cash Rate (OCR).  The market is current expecting the RBNZ to decrease the OCR by at least 0.25% by the end of the year.

 

Summary of Market Movements as at 31 May 2015

Share Markets	31/05	30/04	1 Month Return	3 Month Return	12 Month Return	3 Year Return (p.a.)	5 Year Return (p.a.)
NZX50	5,845	5,791	0.9%	-0.6%	12.9%	18.8%	13.8%
ASX 200 (local)	51,325	51,121	0.4%	-1.4%	9.9%	17.4%	10.3%
ASX 200 (NZD)	55,230	52,958	4.3%	2.6%	7.9%	10.5%	7.2%
MSCI (local)	3,636	3,589	1.3%	2.0%	13.4%	19.9%	13.6%
MSCI (NZD)	6,738	6,270	7.5%	7.7%	26.8%	19.5%	11.8%
Fixed Interest Markets	31/05	30/04	1 Month Change	3 Month Change	12 Month Change	3 Year Change (p.a.)	5 Year Change (p.a.)
NZ 10-Yr	3.63	3.45	0.18	0.34	-0.61	0.21	-1.93
US 10-Yr	2.12	2.03	0.09	0.13	-0.35	0.56	-1.16
NZ OCR	3.50	3.50	0.00	0.00	0.50	1.00	1.00
Currencies	31/05	30/04	1 Month Change	3 Month Change	12 Month Change	3 Year Change (p.a.)	5 Year Change (p.a.)
NZD vs. USD	0.7115	0.7613	-7.0%	-6.4%	-19.4%	-1.8%	1.1%
NZD vs. AUD	0.9293	0.9653	-3.9%	-4.0%	1.8%	5.9%	2.8%
MSCI Weighted NZD			-6.2%	-5.7%	-13.4%	0.4%	1.8%
Commodities	31/05	30/04	1 Month Change	3 Month Change	12 Month Change	3 Year Change (p.a.)	5 Year Change (p.a.)
CRB Index	223.2	229.5	-2.7%	-0.4%	-26.9%	-6.5%	-2.6%
Oil	65.6	66.8	-1.8%	4.8%	-40.1%	-13.7%	-2.6%
Gold	1,189	1,182	0.6%	-2.0%	-4.5%	-8.7%	-0.4%

Content for this newsletter kindly supplied by the Grosvenor Financial Services Group

Disclaimer The information contained in this newsletter is given in good faith and has been derived from sources believed to be accurate.  Neither Grosvenor Financial Services Group Limited (GFSG) or any other associated companies of GFSG nor any of their employees or directors or any other persons gives any warranty of reliability or accuracy nor accepts any responsibility arising in any other way for errors or omissions. Historical performance may not reflect the future performance. This report is not intended as promotional material and is not to be regarded as a securities recommendation. A disclosure statement is available, on request and free of charge, from your adviser.

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