Market update – quarter ending 30 September 2018

from Russell Investments, UniSaver’s investment manager and consultant

Global share markets continued to recover from the losses incurred in February and registered record highs in August. Market sentiment improved, in part, from a round of positive company earnings results in the United States, including technology firms such as Netflix, Facebook, Amazon and Google’s parent, Alphabet. Improving US jobs data and stronger commodity prices were also welcomed by financial markets. 

However, the Trump administration’s announcement that it was imposing tariffs on Chinese exports, and those of other countries, increased market volatility which led to small-cap stocks outperforming large caps stocks as investors preferred companies with less dependence on global trade.

Returns from global fixed interest investments have been relatively flat since March. Longer-term government bond yields were mixed with the US 10-year Treasury yields rising in line with an improving growth outlook and the decision by the US Federal Reserve (the Fed) to accelerate its rate hike agenda. Over the course of 2018 we have seen the Fed raise rates while indicating that more rises are possible. 

The Reserve Bank of New Zealand’s new governor, Adrian Orr, reiterated the view that monetary policy would remain accommodative in the near-term; though he clearly signalled a willingness for the next move in interest rates to be determined by the relative strength of key economic data. The New Zealand official cash rate has remained unchanged since February 2017, at 1.75%.

How did markets affect UniSaver’s investment options

The strong share market returns were positive for UniSaver’s conservative, balanced and growth options. However, global listed property and global listed infrastructure markets yielded softer performance than the NZ and global share markets. As a result, UniSaver’s option did not perform as well as portfolios with only NZ shares in the last quarter. However, we believe that our exposure to markets and asset classes outside New Zealand is important to keep the risks of members’ investments diversified. 

The New Zealand Dollar was weaker in the September quarter, driven by the expectations of softer near-term domestic growth, a further widening in the interest rate differential between New Zealand and the United States, and weaker commodity prices. Since UniSaver’s strategy is to hedge the currency risk of global assets, its investment options did not profit from this weakening of the New Zealand Dollar.

Regardless of what has happened or will happen in the short term, we continue to believe that our global allocation, currency hedging strategy and diversification into other asset classes will improve the risk and return outcomes of the different investment options over longer time periods. 


In the view of Russell Investments’ strategists, the recent sell-off (early October 2018) in global share markets looks similar to the market correction that occurred in early February. Essentially, the market is re-thinking its excitement over the past few months - with investors now realising that perhaps there is more to be concerned about, especially in regard to the forward-looking economic outlook. Specifically, a number of issues have surged to the forefront: How high interest rates will climb in the United States, when inflation will become a problem and how trade tensions between the US, China and other countries could impact economic growth rates. This likely indicates that the remainder of 2018 will see more volatility across markets around the world. 

Nevertheless, many commentators don’t see this as the end of the bull market – as the combination of solid economic growth and restrained inflation remains intact for now. While there will be a more significant market correction at some point, the recent slide is likely not indicative of its immediate beginning.

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. Copyright © 2018 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.


back to top