Market corrections are always uncomfortable. After a very strong start to the year in January, accompanied by talk of a 'melt-up', markets have suddenly decided instead that it was time for a 'melt down'.
December was another strong month for equities with increases of +2.6%, +2.0% and +1.0% for the New Zealand, Australian and US markets respectively, however the relative strength of the Kiwi dollar detracted somewhat from US returns which were -2.8% in NZD terms.
We are beginning to sound like a stuck record as equity markets seem to be hitting new record highs on a monthly basis.
The bull market in global equities continued to roll on in October with gains of +2.7%, +4.1% and +2.2% for the NZX50, Australian All Ords and US S&P 500 respectively.
Global equities ended yet another strong month, up +2.3% (+1.6% in NZD), taking their gains to +5.4% (+6.5%) for the quarter and +18.8% (+19.8%) for the year.
The music continued to play in equity markets with the NZX50 up +1.6% in August, its eighth monthly increase in a row and its 2nd longest winning streak in the last 20 years.
July saw a continuation of the placid and rising equity market globally and locally. Global equities rose 2.8%, led by a 6% rise in Emerging Markets, and a 2% rise in the S&P500.
Our portfolios continue to muddle along, with a number of our managers struggling with the very low volatility in markets and the high correlation between stocks.
Global equity markets rose +2.3% in May, led by the UK (+4.4%), Emerging Markets (+3.0%) and Japan (+2.4%), while closer to home markets were more subdued with the local NZX50 rising +0.5% and Australias' All Ordinaries falling -2.6%, largely on the back of weakness in the financial sector (-10% see below).
With a third of the year already gone the local NZX50 is currently up 7.2% while the Australian All Ordinaries and MSCI World Indices are up 5.3% and 8.2% respectively.
For most NZ investors March 31 is the end of the financial year. It is always interesting to cast our minds back to what we were thinking this time last year. In our March 2016 newsletter, we described a world concerned about global growth.
The February reporting season passed relatively uneventfully on the local market with analysts upgrading their 2017 earnings forecasts for 62% of the companies reporting versus 38% that received downgrades, although the optimism was dampened by a slight fall in expected earnings growth to 5.8%.
Global equities continued on with the pre-Christmas rally in January, with the tech heavy Nasdaq index and Emerging Markets particularly strong, gaining 4.3% and 5.5% respectively.
The New Zealand stock market limped into the new year with the NZSE 50 recording a small loss of -0.2% for the month of December. Despite falling -6.5% over the last quarter the NZSE 50 was up a very respectable +8.8% for the year....
The Australian market (ASX200) rose 3.0% in November whereas small cap stocks were generally out of favour with the Small Ords falling -1.2% and the NZX 50 down -0.9%. There was talk that the banking sell off was been overdone...
Global markets fell in October on the back of a resurgence of Donald Trump after the FBI decided to reopen their case against Hilary Clinton. Global equities fell -1.7% in USDs and the USD weakened.
In September equity markets were subdued with the largest move being a -2.6% fall in the Japanese market. US stocks fell -0.1%, Europe gained 0.2%, the UK was up +1.7%, Emerging Markets +1.3%, Australia +0.4% and NZ fell -0.5%.
Globally, the most major markets eked out small positive returns in August, although in the majority of instances this was more than offset by strength in the NZD.
Australasian equity markets shrugged off the after effects of June's Brexit vote with the NZX50 and Australian All Ords posting returns of 6.5% and 6.3% respectively.
The NZ share market continued its strong performance relative to other developed markets. Despite a -2% fall in June, the NZ share market has risen +9.1% in 2016, and its closest rival (in NZDs) was the S&P500 (-1.8%).
The old adage "Sell In May And Go Away" has so far proved poor advice as the NZX50 continued to go from strength to strength, rising 3.2% for the month, taking year-to-date gains to 11.3% and ending the month at a new all-time high of 7,039.
Markets were generally firmer again in April, but the NZD strengthened against both the AUD and USD, which dampened returns from offshore markets.
The NZ share market rose +8.5% in March, its biggest monthly gain since March 2006. Over the quarter NZ shares rose +6.8% and over six months +20.7%. In the last 5 years they have almost doubled (+96.3%).
If you looked at market indices at the end of February, you could be forgiven for thinking it was a fairly ho-hum month. The NZ share market rose 0.9%, the Australian fell -1.5% and global equities were down just -1.0%.
It has been a fascinating start to 2016. Volatility has returned to financial markets. Credit, currency and equity markets have been reacting to fears of a China meltdown, oil companies and their debt have been sold aggressively, banks have been caught up in the extrapolation of negative scenarios......
I was interested in a Bloomberg article written on January 1 2016 entitled "Easy Money Hard to Find in '15 With Markets Cooled by China, Fed". The opening paragraph reads, "For investors, 2015 will be remembered as a year to forget. Little went right and plenty went wrong"......
Equity markets globally were generally firmer in November with the notable exception of Australia and emerging markets, both exposed to energy and hard commodity prices.
Equity markets globally rallied in October after a steep sell-off in the September quarter. Market turning points like this are always a good test of manager skill, particularly when you are a long/short manager.
September 2015 Quarterly Report
After a strong start to the quarter in July, volatility returned to markets in August and we saw heavy falls in equities locally and offshore. The NZ share market was less affected than others, probably due to the RBNZ's rate cut and the expectation of more to come, but it still fell -5.5% in the second two months of the quarter.
After an extended period of rising markets, August was a timely reminder of the risks which exist in listed securites. In August many quality companies fell heavily, and broad markets, which most investors are exposed to through low cost index funds, ETF's also fell heavily.
July was a very volatile month for global equities against the backdrop of a possible Greek exit and market turbulence in China. When neither of these developed into 'crises', risk was back on the table.
How times change. In Saxe's March quarterly, the NZ economy was 'rocking'. The one negative. to which I referred, was the limited impact the huge fall in dairy prices appeared to be having. However, with housing and immigration strong, the good times looked set to continue.
A weaker NZD provided a tail wind for offshore investments in May. The Kiwi fell -3.5% against the AUD, and -6.6% against the USD, falling to levels last seen in 2010.
In April we saw the NZ dollar re-test its highest level ever against the Australian dollar, twice trading into the high 0.90's.
There was wide divergence in global equity markets in March and in the quarter. The divergence was due to the different stages of the economic cycle the various economies are at.
Equity markets rallied strongly in February and currencies were on the move. The rally in Australian equities which began mid-January gather steam in February.
The NZ and Australian share markets started the year strongly, gaining 3.2% and 3.3% respectively while the US share market (S&P500) fell -3.1%.
Picking up on our last quarterly report, we have seen a number of our expected scenarios play out. The Auckland housing market has continued to rise strongly driven by lack of supply and a favourable election result averting 'captial gains tax'.
The main drivers of markets in November were the continued fall in commodity prices, including oil, on the back of weaker demand from China, and in the case of oil OPEC overproducing in an effort to run higher cost competitors out of business.
October was a 'game of two halves'.
Share markets around the world were generally weaker in September and in the September quarter.
Both the NZ and Australian equity markets underperformed global equities in August. They rose 1.1% and 0.7% respectively and over the last year, have risen 15.0% and 14.4%. August is an important month for our local markets with many companies reporting their full or half year results.
The standout performer in July was the Australian sharemarket, which rose 4.40% on the back of a bounce in mining stocks with investor confidence bolstered by China's confirmation that it was on track to achieve 7.5% GDP growth this year.
Looking back over the last 12 months, NZ shares have risen 15.8%, just below Australia's All Ords gain of 17.6%, but lagging the World, which rose 25.5%.
There is an adage in the investment world which says ‘sell in May, and go away’, most likely derived from the start of the Northern summer, where investors bank their profits, and go to the beach.
Global equities rose 1.0% in April, taking them to a 2.5% gain so far in 2014. In NZDs, global shares rose 1.62% in April, but a stronger NZD means that year to date, the return on global equities has been -2.3%.
It is appropriate to start this quarterly report looking at the stellar performance of the NZ dollar over the past quarter and year.
February began very badly with equity markets continuing to fall. On February 6th a headline caught my eye, “Why I’m not buying in to this market correction”, an article in the UK Financial Times quoting Alistair Mundy from Fintech Capital. His timing was immaculate marking the beginning of a sharp rise in equity markets.
Welcome to 2014! Markets surprised us yet again, falling quite sharply in January. The exception was the NZ share market, which rose 2.9%.
As expected, the NZ dollar remained strong in the quarter, and equity markets advanced, with the exception of the NZ share market, which was flat. Global shares rose 8.1% in the quarter, and the Australian share market was up 2.6%.
In September global equities rose 8.3%, but this was largely offset by a 7.4% rise in the Kiwi dollar. NZ shares were again a very good place to be with a gain of 4.3%, compared to a rise of 1.6% for the ASX200 (Australia). The NZ dollar gained 2.6% against the AUD so for NZ investors, the Australian equity market fell -0.90%.
In August we saw a correction in global share markets partly due to developments in the Middle East (Syria), partly due to capitulation in some emerging markets, and partly due to concerns over rising interest rates as the Fed steps back from its stimulatory monetary policies.
In the June quarter we finally saw a break in the NZ dollar. Having strengthened in April to close at its second highest end of month level ever, (0.8562), negative news flows out of China, combined with Bernanke’s announcement regarding a ‘tapering’ of Fed easing, caused a sharp reaction from global investors.
In the first quarter of 2013, global equity markets continued to rally.
The NZ share market took a break in December, rising just 0.4%, versus a +3.2% rise in the Australian market and +1.9% for global equities.
The New Zealand dollar firmed again in September as commodity prices rose, (skim milk jumped 11% in September).
