Economic Commentary March Quarter 2023


Both equity and bond markets bounced higher in the March quarter, following increasing signs that central banks are getting on top of inflationary pressures.  However, the pattern of returns was quite volatile.  Equity markets surged in January on the back of reducing interest rate expectations, only to sell-off most of this gain in February and into early March as the banking sector particularly, came under pressure with the failure of Silicon Valley Bank.  Later in March markets rose again as banking contagion risks receded, and macroeconomic data, in general, reported better than expected (see Figure 1 for the US economy).  

Market roundup

Market performances are reported in Figure 2.  International shares rallied strongly over the quarter, by around 9% in NZD terms and 7.2% in NZD hedged terms.  Within global equities, value stocks took a breather and returned only 2% over the quarter, but they still outperformed over 12-months, returning 5.6% in NZD terms.  Small caps have fared worse, returning around 5.5% in the quarter, but only 0.7% in the year to March 2023.

Emerging markets returned around 5% over the quarter, slightly stronger than the 3.9% and 3.3% returns posted by the NZ and Australian markets respectively.  Over the year to March, however, all performed quite similarly returning around -1%.   

NZ and international investment grade bonds returned around 2.5% in the quarter with some of this gain reflecting a paring back of future rate rise expectations.  Over the year to March NZ investment grade bonds fell around 1%, while international investment grade bonds fell around 5%.   This difference in performance largely reflects that the RBNZ was generally quicker than offshore central banks to raise rates, and hence the marked-to-market capital losses were incurred earlier in our bond market than most offshore markets.

International property stocks again struggled in the quarter, increasing only 0.6% in NZD hedged terms.   In contrast, global infrastructure performed well once again, returning a handy 2.6% for the quarter and 3% for the year to March 2023.  Finally, gold performed well in response to the banking sector stress and increasing efforts being made by Petroleum States and China to reduce their reliance on US dollars for trade settlements.

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