Market update – quarter ended 30 June 2020

From our investment manager, Russell Investments

Posted 23 July 2020

The COVID-19 pandemic that has swept across the globe has shocked the economy and will likely result in the deepest global recession in generations. Dealing with the health emergency has required draconian ‘stay at home’ orders in many countries effectively closing key sectors of the global economy. The resulting unemployment surge has been immense, but it seems likely further pain is on the way as businesses around the world look to adjust their models in light of the new economic realities.

The sudden halt in economic activity contributed to spiraling declines in shares and corporate fixed interest securities during February and early March as investors dramatically retreated from markets. Perhaps taking lessons from the Global Financial Crisis of more than a decade ago, policy makers around the world have been quick to act with aggressive counter measures. Central banks, including New Zealand’s Reserve Bank, have cut interest rates and implemented liquidity programmes, while governments have introduced massive stimulus measures in an effort to provide support during this unprecedented time.

Investment markets have recovered dramatically since the mid-March lows, with many key share market indices at or above beginning-of-year levels. The COVID-19 pandemic and resulting lockdown has actually proved to be a boon for some companies and this has been reflected in very strong market performance by some shares, particularly some of the bellwethers in the technology, consumer discretionary and health care sectors. Other shares, particularly those in travel and tourism have struggled, with many companies in these sectors facing an existential crisis. Fixed interest securities have also performed well, as the lowering of interest rates by central banks has flowed through to higher government bond prices.

Of the key investment markets within the various member options, the US and NZ share markets have been notable standouts, both of which are hovering at near record highs. For the latest quarter, NZ shares (as measured by the S&P/NZ 50 Index including imputation credits) advanced almost 17% while global shares gained almost 18% (as measured by the MSCI All Country World Index – NZ dollar hedged). Share markets in Europe, while up on the March lows, are still down on the year, in some cases significantly. Global fixed income delivered returns of more than 2% (as measured by the Bloomberg Barclays Global Aggregate Bond NZ dollar hedged) during the quarter as corporate bond prices recovered along with higher government bond prices.

The wide variation in returns from both a country, sector and asset class perspective, once again highlight the benefits of adopting globally diversified investment strategies and members can feel comforted by the fact that they do not have ‘all their eggs in one basket.’

How did markets affect UniSaver’s investment options?

After a difficult first quarter of 2020, members in the Conservative, Balanced and Growth options will see a significant rebound in performance over the second quarter, from the end of March through to the end of June.

There are undoubtedly further significant challenges ahead and members should expect volatility, but the recent recovery does highlight the detrimental impact that knee-jerk reactions can have on long-term investment results. As ever, we recommend that members focus on the long term when thinking about their retirement plans, balancing the discomfort of short-term volatility with the prospect of higher returns over the longer term.


The global economy is mired in a deep recession and there remains significant uncertainty as to the path forward for the both the economy and financial markets. The global pandemic has upended lives around the world and with vaccines and treatments still in development the health emergency is far from over.

From an investment perspective, there are, as always, significant issues for consideration. Some countries, such as New Zealand, have dealt with the health emergency rather better than others and are perhaps further along in the recovery process, but it seems certain that we will all be dealing with the consequences of the crisis for many years to come. Similarly, within the corporate world some companies have found themselves to be well-suited to the environment, whereas others have been fighting for their very survival.

Share markets have recovered sharply since the lows of mid-March as policy makers have offered unprecedented levels of support, seemingly taking the worst-case economic scenario off the table for now. Real questions remain though as to the path of the recovery and there will clearly be winners and losers from a company, country and asset class perspective. After last year’s exceptionally strong results, 2020 is a reminder that financial markets go down as well as up. For UniSaver members saving for their retirement, we believe adopting a globally diversified strategy with a long-term horizon remains the most prudent strategy.


The information contained in this publication was prepared by Russell Investment Group Limited. It has been compiled from sources considered to be reliable, but is not guaranteed. This publication provides general information only and should not be relied upon in making an investment decision. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. All investments are subject to risks. Past performance is not a reliable indicator of future performance.

Copyright © 2020 Russell Investments. All rights reserved. This information contained on this publication is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments.


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