Markets performances were mixed
Market performances were mixed in the September quarter. Bonds performed poorly, particularly in New Zealand, yet New Zealand equities enjoyed a very strong performance. Emerging market equities had a poor quarter, but developed large cap equities performed well.
The performance differences reflected cross-currents in macroeconomic conditions and country or sector specific factors. Global growth is still strong, but rising inflation and the prospect of central banks increasing interest rates weighed down fixed income. Emerging market equities were hit by concerns around the solvency of one of China’s largest property developers, Evergrande, its ability to meet its debt obligations, and the flow-on effect to markets and Chinese growth. This also impacted Australian stocks. In contrast, and despite our Covid outbreak, New Zealand’s economic conditions are expected to remain firm and inflation risks are to the upside. As discussed below, the RBNZ lifted the OCR in early October, ending a seven-year period of easing.
Developed market equities climbed further over the September quarter, by around 1.5% in NZD terms. This resulted in a return of 23% for the year to September, while NZD hedged shares increased around over 28% (see Figure 1). Within global equities, higher risk small and value stocks mildly under-performed. Value stocks returned around 0.4%, and small caps fell slightly in NZD terms. Over the year, however, global small caps out-performed returning around 35%, and value stocks also outperformed returning 26%.
As noted in the introduction, emerging markets had a poor quarter, falling by around 7%. At the time of writing the Chinese property developer Evergrande is likely to declare bankruptcy and bond holders are expected to suffer large losses, but it is not expected that this “shock”... Click below to read more.