The Blog

October Market Update

Share market review Over the past 12-months most share markets have produced positive returns with only the Japanese Nikkei index producing a negative return in local currency. The remainder have produced low single digit positive performance except for the NZX and ASX which have produced attractive double digit returns.   As shown above the NZX50 has had a solid 12-month performance. This rally has occurred on the back of slowing local and global markets, which has led to falling local interest rates, and an increased level of foreign ownership (53.7%). These two factors have driven the NZX50 to record high price to earnings (P/E) levels, with the NZX50 now trading at a record 30.1X. As the global economies have continued to slow, we have seen a steady reduction in NZ Gross Domestic Product (GDP) from 3.1% y.o.y in June 2017 to 2.1% y.o.y June 2019. NZ GDP may slow further into the end of 2019 unless we see a meaningful turnaround from our trading partners. NZ economy & interest rates Reserve Bank Governor Adrian Orr cut the NZ Official Cash […]

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August Market Update

This monthly commentary has been one of the most difficult to write in a long time. The reason for this, is that global markets are changing so fast with monumental shifts happening on a regular basis. I have attempted to capture some of the larger changes below, but no doubt by the time you are reading this it will seem like old news due to some other monumental shift. RBNZ cuts 0.50% We will start with the Reserve Bank of New Zealand (RBNZ) surprising the markets with a 0.50% cut to the official cash rate (OCR) versus the widely expected 0.25%. While this may seem a trivial difference, the only times in recent history that there has been a 0.50% cut in the OCR has been the following the 9/11 terror attacks, during the GFC, and post the Christchurch earthquake. This is meaningful. This reduced the OCR to 1.00% and caused the bond valuations to move higher (yields lower). The NZ 10-year government bond rate has now fallen by an incredible 1.21% to a new record low of 1.08% gross […]

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July Market Update

Will they or won’t they……cut? Over the last quarter global markets have shown a high level of uncertainty around what the US Federal Reserve will do with interest rates. The markets had priced in a 90% chance that the Fed would reduce the cash rate by 0.50%, and a 51% chance of 0.75% rate cut by the end of 2019. This is a significant change from September last year when the markets were pricing in a high chance of two rate increases.  US jobs data came out stronger than expected and the hopes of further stimulus via a rate cut declined. This “good news” sent US share markets lower, and bond yields higher (bond prices declined). In a world addicted to stimuli any positive growth data is currently being seen as a negative as the chance of continued stimulus via lower rates and Quantitative Easing declines. ISM Manufacturing Purchasers Manager Index US Non-farm Payrolls A slowing global economy The global economy has continued to slow in 2019, and the fear of an escalation in the trade war between China and […]

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June Market Update

Trade War Escalates In May we saw the markets start to price in an increasing level of uncertainty around a trade agreement between the United States and China. In April it looked as if a trade deal was only weeks away from being reached, but President Trump then fired a warning shot across the Chinese negotiators bow in his usual fashion -via a Tweet. May 5th – President Trump states the tariff of 10% will be increased to 25% on 10th May. May 15th – President Trump signs an executive order restricting the export of US technology to “foreign adversaries” June 1st – China responds raising tariffs on $60 billion worth of US goods On the back of this increased uncertainty the S&P500 has recorded the worst May performance in over 10-years, and the second worst since the 1960’s. This is ringing more than a few alarm bells around the globe and strangely appears to be driving investors from overpriced shares into overpriced bonds. What could calm these markets? A US/China Trade Agreement – potentially may occur as soon as […]

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April Market Update

Contents Government Bonds Central Banks US Share Market Rally Australian Property Update NZ Property Market Update A world of new lows Market indicators are now suggesting that the world is slowing faster than most Central Banks had expected, and the chance of interest rates moving higher in 2019 has reduced from approximately 50/50 to now be almost zero percent. As suggested in previous commentary the European Central Bank, US Federal Reserve and other central banks in the developed world have signalled they wish to continue to support lower interest rates for longer and this has led to the inversion of several “yield curves”, including New Zealand’s. It has also led to the German 10-year government bond moving back into negative territory for the first time since July 2017. New Zealand’s 10-year bond rate has also moved to the record low of 1.74% gross p.a. Both local and global central banks have reversed their tightening biases with: The US Fed removing the likelihood of any cash rate rises in 2019 and stopping their quantitative tightening programme sooner than expected; The ECB […]

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December Market Update

China/US trade war – He said, Xi said Coming into the US mid-term elections (where the Republicans lost control of House of Representatives to the Democrats) President Trump’s rhetoric was strongly anti-China. Post the mid-terms his tone has become more accommodative to China. The G20 has produced 90-days of breathing room in the all-important trade war between China and the US. President Trump met with President Xi Jinping, where they apparently discussed 142 different structural items, including the removal of forced joint ventures and loss of intellectual property for US companies expanding into China. Unsurprisingly, President Trump has stated “It’s an incredible deal, and if it happens it will go down as one of the largest deals ever made”. Not to steal from the President’s comment, but as we progress past this meeting it will be interesting to see if anything actually changes. President Trump left the meeting with an understanding that China will be reducing and removing the 40% tariff they had placed on American made cars. Interestingly, as at 4 December, President Xi has yet to confirm this, […]

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October Market Commentary

New Zealand share market – how high is too high? We continue to watch in wonder as the New Zealand share market pushes to new highs. Since the start of the year the NZX50 is up almost 10% and a very impressive 11.70% per annum over the past 10 years to 30 September. Some of this staggering growth has come from increased corporate earnings, but most of the gains have come from an expansion in the multiple of the Price to Earnings (P/E) ratio which has grown from a low of 13.3x in 2012 to a record high 26.6x today, according to FNZC. This growth has been mainly driven by offshore investors who today currently own just under 50% of the total market, so the concern is what will happen to prices if the foreign investors leave the New Zealand market for some reason. New Zealand economy slowing We have had an incredibly positive decade of growth in New Zealand, on the back of strong demand from offshore for local assets and globally falling interest rates. This has led to […]

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September Market Update

PWA September Market Commentary NZ economy slowing We have had an incredibly positive decade of growth in New Zealand, on the back of strong demand from offshore for local assets, and globally falling interest rates. This has led to strong business growth/confidence and a reducing unemployment rate, as well as an ever more expensive New Zealand share market. Data released in the last week of August showed that business confidence in New Zealand has dropped from a high of over 60% positive in 2014 to 40% negative today. The last time business confidence was at such low levels was back in 2008-2009, during the Global Financial Crisis (GFC). This negative view on growth is also apparent in the slowing NZ Gross Domestic Product (GDP) which has slowed from a growth rate of just under 5% per annum in late-2014 to just over 2% today. The Reserve Bank of New Zealand (RBNZ) is forecasting growth accelerating into the end of 2018, but there is more data coming in to support a further slowing in growth and local markets are now pricing […]

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