Market review - quarter ending 30 September 2019
from Russell Investments, UniSaver’s investment manager and consultant
Share markets around the world have continued to advance even as investors fret about the slowing global economy and the ongoing trade war between the US and China. Key central banks, such as the US Federal Reserve, have responded to slowing growth by reducing interest rates in the hope that these actions will help kick-start their economies. In New Zealand, the Reserve Bank surprised the market by reducing the Official Cash Rate (OCR) to 1% as it attempts to meet its employment and inflation objectives. Lower interest rates generally encourage companies and individuals to borrow more money; if this generates increased consumption or investment it can lead to higher company earnings, increases in wages and employment and stronger growth.
Global shares returned 0.9% for the quarter (as measured by the MSCI All Country World Index – NZ dollar hedged) and are now up approximately 16% on the year. The New Zealand share market marched ever higher, advancing 4.3% for the quarter and 25.0% (as measured by the S&P/NZX 50 Index) since the beginning of the year. The more defensive shares, like those of the local energy companies, have done exceptionally well as investors increasingly look to the share market as a means of generating income.
With interest rates moving lower, global fixed interest markets delivered strong returns for the quarter (2.5% as measured by the Bloomberg Barclays Global Aggregate Index NZ dollar hedged) and have delivered more than 8% in 2019.
The NZ dollar weakened further during the quarter, with the prospect for further rates cuts and weaker growth continuing to weigh on the minds of investors.
How did markets affect UniSaver’s investment options?
All UniSaver investment options performed well as the major asset classes delivered strong returns. Global infrastructure and Australasian shares were again the stand-out performers within the UniSaver portfolios. Given the strong performance of shares, the investment options with greater exposure to growth assets outperformed the more cautious options like cash and the conservative strategy.
Longer-term returns of all UniSaver options have been solid and broadly in line with objectives, again with the more growth-oriented strategies delivering higher returns than the more conservative strategies.
Most investment assets have delivered strong returns in recent times even as global economic growth has weakened and the outlook has become murkier. Russell Investments’ strategists remain cautious noting that business confidence has waned, the outlook for corporate earnings has softened and global geopolitical risks remain elevated. This uncertainty could generate a self-fulfilling cycle, where low confidence leads to lower spending, higher unemployment and weaker corporate profits. That said, if there is some sort of resolution in the trade war between the US and China, the accommodative monetary and fiscal policy we see around the world may pave the way for further gains in share markets.
The information contained in this publication was prepared by Russell Investment Group Limited (RIG). RIG is the investment manager for UniSaver. This publication 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.
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