The joy of low interest rates As we finish another month, we have further historical events occurring. This time it is closer to home, with 2-year & 5-year government bond yields falling into negative territory for the first time in history. In September, the 5-year NZ government bond rate went as low as -0.06%. This is down from the not so attractive 0.66% six months ago. NZ Yield Curve – 18th Sept 2020 Source: The Daily Shot This has also led to mortgage rates in New Zealand dropping, which in turn is throwing further fuel on an already overpriced NZ […]
Pay attention – we are in the middle of a historically significant event There is an old proverb, “May you live in interesting times”. This is falsely attributed to an English translation of a Chinese curse. The closest Chinese comparison to this saying is, “Better to be a dog in times of tranquillity, than a human in times of chaos“. Either way, there is no arguing that we do indeed live in interesting times. Since the start of the year, the world has changed in meaningful ways. We will focus below on the market related changes. Firstly, global share markets […]
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The markets appear fully recovered, but looks can be deceiving If you are watching the S&P500 you will know that as at the end of July, it was approximately 4% off its pre-Covid mid-February highs. If we dig a bit deeper however the index starts to tell a very different story. As at late-July, 186 of the S&P500 stocks, or 37% were showing a gain. The remaining 64% were still showing a loss since the start of the year. Delving deeper still we see that 226 or almost half of the S&P500 are still down at least 10% since the […]
Markets continue to defy gravity As US and NZ share markets test new highs the data from around the world keeps getting worse. Later in this month’s discussion we will make a case for why share values may not be as overpriced as we all believe, but first let’s review the worsening news. US Covid cases on the rise again As President Trump continues to understate the rising risks of Covid infections in the US and States continue to attempt reopening to get some semblance of growth back in the economy, the daily new cases in the US continue to […]
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 […]
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 […]
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 […]
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 […]
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 […]