Investment update – quarter ended 31 March 2020

From our investment manager, Russell Investments

Posted 20 April 2020

After a challenging year for investors in 2018, global share markets staged a stunning comeback in 2019, as investors cheered further interest rate cuts by central banks around the world and a softening of rhetoric around important elements of the US-China trade war.

The beginning of 2020 seemed to offer a continuation of last year as progress in the United States-China trade talks and accommodative central banks led to a strong start to the year for share markets. However, sentiment changed dramatically in mid-February as investors woke up to the very real impact Covid-19 was having on the global economy. Since that time, the Covid-19 pandemic has upended life as we know it, sending large swathes of the globe into lockdown and effectively shuttering the global economy. Almost every country on earth is currently experiencing a once-in-a-generation health emergency as Covid-19 spreads rapidly through exposed populations. Millions of people have already lost their jobs while many sectors of the economy are currently inactive.

The impact on financial markets has been immense. After hitting all-time records during February, share markets declined precipitously with many key indices entering official bear market territory (-20%) in a matter of weeks. Corporate fixed interest securities also experienced significant weakness as investors attempted to assess the impact of the massive economic shock on corporate earnings and balance sheets. At the same time, Saudi Arabia launched an aggressive price war in the global oil markets helping send crude oil to levels not seen for almost 20 years which placed significant pressure on the shares and fixed interest securities of companies operating in this sector.

The response to the crisis from policy makers has been swift and aggressive. Central banks have drastically cut interest rates and implemented liquidity programmes, while governments have introduced massive stimulus programmes to support their local economies while they battle the coronavirus pandemic. Share markets, although still down significantly on the year, recovered somewhat towards the end of March as investors reacted to the unprecedented co-ordinated policy response.

For the quarter, global shares declined 20.8% (as measured by the MSCI All Country World Index – NZ dollar hedged) while the New Zealand share market declined 14.6% (as measured by the S&P/NZ 50 Index including imputation credits). Shares in companies related to travel and tourism were particularly hard hit, but most segments of the share markets suffered significant price declines.

Fixed interest markets offered some respite, with the global bond market up 1.7% over the quarter (as tracked by the Bloomberg Barclays Global Aggregate Index – NZ dollar hedged), driven largely by the strong performance of global government fixed interest securities. Corporate fixed interest securities had a difficult quarter, reflecting the significantly weaker economic outlook due to the Covid-19 pandemic.

How did markets affect UniSaver’s investment options?

With the exception of the Cash investment option, it was a very challenging quarter for all UniSaver options. Those members in options holding significant allocations to growth assets like shares, will see significant declines in their balances at the end of the quarter reflecting the turmoil in markets.

While it is painful and the environment is concerning, we encourage members with no pressing need for funds to consider their long-term investment goals and tolerance for risk rather than reacting too much to recent events. It is undoubtedly tempting to move assets to lower risk options in the current environment, but superannuation is a long-term game and investment markets are forward-looking; this means that staying invested in assets with significant potential for growth may end up being one of the most important decisions members make during this very difficult time.


We are in the midst of the greatest economic shock since the Great Depression. The impact on investment markets has been severe and there remains significant uncertainty as to the path forward for the both the economy and financial markets. The ultimate impact Covid-19 and the policy response to it has on the global economy is essentially unforecastable as is its impact on global financial markets. We know we will see record declines in global economic activity in the coming months, and volatility in markets will likely remain high, but in the face of these unprecedented events, governments and central banks have been incredibly proactive in taking steps they believe will support the wider economy and financial markets.

Many countries are now also starting to move towards relaxing lock-down restrictions which has the potential to generate a sharp rebound in economic growth. While there are undoubtedly significant challenges ahead there are reasons for optimism. We have seen this in share markets which have rallied sharply since their late March lows, as investors turn their focus to how the world will look once the immediate health emergency is over.

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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