Key Market Movements for the Third Quarter in 2016

New Zealand shares

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The local market continued its strong recent run in the third quarter of 2016. With local interest rates reducing in August, several of the higher dividend paying companies in the NZXexperienced particularly strong demand. Leading performers were Heartland Bank +33.9%, Kathmandu +32.7% and Steel & Tube +30.0%. At the other end of the spectrum, Tower announced an increased provision for the Canterbury earthquakes which was expected to impact after tax profit by $16.2m. Tower’s shares ended the quarter down -32.5%. Source: S&P/NZX 50 Index (gross)


New Zealand fixed interest

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The Reserve Bank of New Zealand reduced the Official Cash Rate by 0.25% in August which was right in line with market expectations. In justifying the cut, Governor Wheeler cited concerns about weaker global growth and New Zealand’s relatively high interest rates contributing to a high exchange rate. With interest rates declining across the domestic curve, the New Zealand Corporate A Bond Index delivered another solid result for the quarter. Source: S&P/NZX A-Grade Corporate Bond Index


New Zealand property

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The moderating domestic interest rate environment supported the performance of the domestic listed property sector, which registered its tenth positive return in the last 11 quarters. Precinct Properties (+5.9%) and Property for Industry (+5.8%) were the clear leading performers in the sector this quarter. Source: S&P/NZX All Real Estate Index (gross)


Australian shares

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+5.23% (hedged to NZD) +2.75% (unhedged)

Developed market shares performed well in the third quarter. This was largely due to the significant bounce-back in sentiment that occurred once the initial fears about the impact of the UK’s vote to exit the European Union had receded. US second quarter earnings announcements were higher than expected and this helped support international indices, and even British and European markets moved higher over the quarter. A stronger New Zealand dollar saw reported returns from hedged equities outperforming the comparable returns from unhedged investments. Source: MSCI World ex-Australia Index (net div.)


Emerging markets shares

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This was the leading asset class over the three months to September as the pendulum swung firmly back in favour of risky assets. Signs of greater economic stabilisation in China and additional stimulus from global central banks outweighed previous concerns about the projected pace of future USinterest rate hikes. Although Egypt was the best performing single country in the emerging markets this quarter, it was the double digit returns from leading constituents China and Brazil which propelled the strong overall performance of the region. Source: MSCI Emerging Markets Index (gross div.)


International fixed interest

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It was a much less eventful quarter in international bond markets. USten year bond yields inched 12 basis points higher over the quarter as the Federal Reserve continued to hint at a potential additional rate hike before the end of 2016. However, comparable global yield curves exhibited mixed behaviour, with German ten year yields effectively flat for the quarter and UK yields falling by 12 basis points. Overall, it was a relatively benign quarter for this asset class, which is reflected by the return of the reference index. Source: Citigroup World Government Bond Index 1-5 Years (hedged to NZD)


International property

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The ongoing messaging coming out of the Federal Reserve in support of a further interest rate hike was enough to dampen investor enthusiasm for global listed property assets. The S&P Developed REIT Index was flat in USdollar terms, however, a general appreciation in the value of the New Zealand dollar during the quarter dragged the return to unhedged investors into the negatives. The Australian listed property sector was also in the red for the quarter, with the S&P/ASX300 A-REIT Total Return Index shedding 1.88%% in Australian dollar terms. Source: S&P Developed REIT Index (total return)

All returns are expressed in NZD. It is assumed that Australian shares, emerging markets shares and international property are invested on an unhedged basis, and therefore returns from these sectors are susceptible to movement in the value of the NZD.

By |2018-01-25T14:01:01+00:00December 9th, 2016|Good advice|0 Comments