Trilogy Financial Solutions in conjunction with Bevan Graham - Economist and Greg Flemming - Head of Global Diversified Funds from Salt Funds Management who share their thoughts on the current global markets and resulting investment strategies.
What happened
Prepared by MakaoInvestments on behalf of WealthpointLimited.
Global share markets reached all-time highs over the month of June 2021, brushing off comments from the US Federal Reserve (the Fed) that interest rates could rise sooner than expected amid rising inflation. The number of global companies valued at over one trillion US dollars increased to five during the month, with Facebook being the latest company to join the ranks. Meanwhile, Microsoft reached a market cap of over two trillion US dollars in June.
The continued spread of the COVID delta variant, which was first detected in India, resulted in a delayed reopening in the United Kingdom and new restrictions in Australia. On a more positive note, the share of the world population that has received at least one dose of a COVID-19 vaccine exceeded 20% over the month.
An economic data release during the month revealed that the US consumer price index rose higher than expected, to an annual rate of 5%. However, a third of the increase was attributed to used car prices recovering. As a result, this had a muted impact on bond yields.
The Fed communicated that they are retaining the stance that the current period of higher inflation is transitory, and therefore left interest rates unchanged. However the Fed signalled that interest rates could increase sooner than initially thought, citing a stronger than expected economic rebound. The outlook for rate rises was therefore brought forward from 2024 to 2023.
Although these comments prompted a spike in bond yields and the US dollar, the US 10 year ended the month 0.1% lower. The price of gold also declined, however crude oil prices continued to grind higher over the month, nearing levels not seen since 2014.
Closer to home, the Reserve Bank of Australia kept interest rates unchanged and while the Reserve Bank of New Zealand did not meet in June, they updated their Memorandum of Understanding with the government to include debt-to-income lending restrictions in their toolkit to combat the rapidly rising prices in the residential property market.
Global share markets reached all-time highs over the month of June 2021, brushing off comments from the US Federal Reserve (the Fed) that interest rates could rise sooner than expected amid rising inflation.
Looking back
Returns from NZ Fixed Income were flat as yields ended the month relatively unchanged. Over the last year the 10-year NZ government bond yield has nearly doubled, resulting in negative returns for NZ Fixed Income investors. Global Fixed Income investors fared better, with the asset class holding ground, but the annual returns for both NZ and Global Fixed Income are poor relative to history.
June was a positive month for equity markets. NZ, Australian and Global Shares all delivered a return between 2 and 3%. This was a continuation of the great performance from offshore markets over the last year. NZ Shares have been lagging significantly behind, however, both over the rolling quarter and the last 12 months.
New Zealand shares
With the exception of Auckland International Airport (AIA), a stock heavily dependent on the reopening of borders, all other stocks in the S&P/NZX 10 Index were up during the month of June.
Having experienced significant losses over the last year, A2 Milk (ATM) bounced back significantly over the month. This was a small step up, however, compared to the drop in the stock price that came on the back of continued supply chain issues and recent changes in executive management.
Overall, the stock is still down 68% from the end of June last year.
Similarly, Spark (SPK) and Fisher & Paykel Healthcare (FPH) also regained some of their losses experienced in prior months.
What happened
COVID19 vaccinations continued to be rolled out globally at a pace of over 30
million per day, and nearly 2 billion doses were administered by the end of May.
During the month the Labour government in New Zealand released their budget for 2021, which included increased social welfare benefits. This was seen as a marginal positive for the economy by many local economists due to the higher propensity to spend of beneficiaries. The announcement had a muted impact on the New Zealand share market, however.
Bond yields continued to rise in New Zealand, even as the Reserve Bank of New Zealand left the official cash rate (OCR) unchanged at 0.25% during the month. In other parts of the world yields declined slightly, namely in the US, amidst the release of mixed economic data, including an unexpected rise in the unemployment rate. Wealthpoint Market Update June 2021 US inflation was higher than expected, which triggered a spike in rates and decline in the share market on the day of the release. However, these shocks reverted by the end of the month. Nevertheless, large technology stocks that performed well in 2020 continued their recent underperformance. Later in the month, the release of the minutes from the US Federal Reserve (Fed) meeting in April revealed that tapering of asset purchases may be up for discussion at future meetings if the economy continued to make rapid progress. This was the first public hint that the Fed is considering tighter monetary policy since the market sell off and lockdowns related to the COVID 19 pandemic. Commodities rose over the month on the back of higher expected demand. In contrast, speculative digital assets such as bitcoin declined significantly.
The sell-off of A2 Milk (ATM) intensified during the month after a further downward
revision of forecast sales and the resignation of the Chief Executive Officer for Asia
Pacific. Fisher & Paykel Healthcare (FPH) released a record profit in their 2021
annual report, however, although a forecast for 2022 was not disclosed, there was
talk of reduced global respiratory hospitalisations because of the vaccines, which
investors saw as a negative for the stock.
Infratil
(IFT) and Mainfreight (MFT) shares rose over the month, supported by the
release of their annual results to the end of March 2021.