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The Blog

June Market Update

Things don’t look better, just less bad Less Bad No.1 At the start of this pandemic, governments around the world were relying on data out of China to determine the infection and fatality rates for Covid-19 and reacted accordingly. There was a high level of uncertainty and assumed high infection/fatality rates across a limited sample size, which did not allow for many different factors across nations such as smokers vs. non-smokers, health systems, living conditions demographics, etc. As more data has been collated, the Infection Fatality Rate (IFR) has consistently dropped. Initially, it was thought the virus had an IFR of around 3.30% of those infected. This has most recently been reduced to 0.82%. Even this lower number is expected to be overstating the IFR given many of those infected may not have even been tested or shown symptoms. Infection Fatality Rates Early China report vs. US recent data Less Bad No.2 In early-March we saw the risk-free rates (government bond yields) and spreads (margin above the risk-free rate) increase to levels last seen in the 2008 Global Financial Crisis […]

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March Market Update

What are we watching for? Below we have discussed several different signals that the PWA Investment Committee are monitoring to identify a suitable time to start increasing the allocation to bonds and shares as we progress through this market correction. What sort of market cycle is this? There are many letters being thrown around as to how this market cycle will play out. A “V” recovery means a sharp sell-off and an equally sharp share recovery (as seen in the 1987 stock market crash). A “U” shaped recovery means a deeper and lower for longer bottom (as seen in the 1930’s stock market crash). A “W” sharped recovery means the market has a recovery before another correction and then a further recovery (as in the 1966 market correction). In considering which cycle we might be in we must look to what is causing the correction and how the central banks and governments are responding. Quite clearly the response to shut down economies to limit the spread of Covid-19 is the reason for the sell off. This in turn is impacting […]

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December Market Update

2019 – Another year of growth underwritten by Central banks You may recall at the end of 2018 we saw a large correction down in the S&P500 of around -20% as investors in US shares sold out on fear of rising rates and slowing growth. Enter the US Federal Reserve with a change in monetary policy from tightening (raising rates) to loosening policy (dropping rates). Interest rates in US and around the globe fell, however the world continued to slow with the global Purchasing Manager Index (PMI) moving into negative territory around the world. This caused share markets in most developed economies to move sideways on the uncertainty around whether we would see the US China trade war leading to the developed economies moving into recession. Economists were forecasting that in August 2019 Quantitative Easing would end with a net $10 billion per month being removed from the markets. As the world continued to slow however Central Banks again rode to the rescue and the QE forecast changed with November 2019 forecast US$100 billion per month being pumped into the […]

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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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Disclaimer
The information provided in this email is general only. It does not take into account the investment objectives, financial situation or particular needs of any person and may not be appropriate for your requirements. We strongly suggest that investors consult a financial adviser prior to making any investment decision.