Trilogy Investment Update - March 2025

Macroeconomic and Strategic Update: Chiti's discussion with Milford

Watch this 5-minute video for a quick update from Chiti and Mark Riggall on the latest macroeconomic news, market risks, and opportunities.

Mark is the Portfolio Manager of a number of Milford funds in addition to responsibility for managing the Central Dealing Desk.

Chiti closed the discussion with a few key messages:

• Diversify your portfolio.

• Stay emotionally disciplined and stay invested.

• Follow the data; don’t follow the hype.

• Your investment time horizons and cash flows are important.

• Get some good advice (feel free to contact us).

In this update, we have covered the following topics:

• Market volatility

• Changes to the Active Investor Plus Visa program

• End of tax year reminders

If you would like to discuss your current portfolio, maturing term deposits, retirement planning needs, or any other financial matters, please feel free to give our office a call at 09 553 8928 or email us at info@trilogyfs.co.nz.

Sincerely,

The Team at Trilogy Financial Solutions

Market volatility

The above VIX index (as at 10 March 2025) shows higher levels of volatility in the current market environment.

• Mixed global performance: February saw global stock markets largely trading within a narrow range and finishing the month with losses overall. The S&P 500 and the tech-heavy NASDAQ both declined, while European markets showed positive performance. The weakening New Zealand dollar lessened the impact of US market losses for NZ investors, resulting in a smaller decline for the S&P 500 in NZD terms.

• US instability: A mix of worsening US economic indicators, including persistent inflation (evidenced by higher CPI) and sluggish retail sales signalling a consumer retreat, alongside unclear government policy, contributed to instability in US equity markets."

• Trump’s effect on market volatility: Donald Trump’s policies regarding tariffs, particularly regarding tariffs on imports from Canada, Mexico, and China, have caused sharp declines in stock markets worldwide. The uncertainty surrounding these policies has led to a selloff, erasing $1.7 trillion from the S&P 500 and causing the tech-focused Nasdaq-100 to experience its worst performance since 2022. Trump's flip-flopping on tariff implementation, such as temporarily postponing new tariffs on Mexico and Canada while doubling those on Chinese goods, has further unsettled investors.

• Geopolitical risks: The collapse of Syria's Assad regime has destabilised the Middle East, raising fears of potential Israeli action against Iran. The Ukraine-Russia conflict persists despite diplomatic efforts, while North Korea's aggressive stance and alliance with Russia have heightened tensions in East Asia. Additionally, a surge in cyberattacks targeting critical infrastructure and financial systems has emerged as a significant threat. These developments have particularly impacted the energy, defence, and technology sectors, creating a challenging environment for investors navigating the complex interplay of global political risks and market dynamics.

• The good news: Your portfolios are well diversified, and the underlying managers we have selected are actively managing and constantly making changes to your portfolio.

A path to residency for investors

Last month, changes were made to the Active Investor Plus Visa. This visa is available as a way for overseas investors to obtain residency status in New Zealand.

Below is a summary of the key changes.

• Active Investor Plus Visa Program Overhaul

  • Aims to increase accessibility and attract more investors.

  • Addresses concerns about high investment thresholds and focus on risky investments.

• Two New Categories

  • Growth Category (NZD 5 million):

    • Invest in approved managed funds/direct investments.

    • Minimum 21 days in NZ over 3 years.

  • Balanced Category (NZD 10 million):

    • Invest in acceptable investments (bonds, equities, philanthropy, property, Growth Category investments).

    • Minimum 105 days in NZ over 5 years.

    • The above duration can be reduced by making additional investments.

• What’s different:

  • Removal of English language requirement.

  • Greater flexibility and lower financial commitment for Growth Category.

  • Balanced Category offers a lower-risk option.

• Other details:

  • The new Active Investor Plus Visa program opens 1st April 2025.

  • The government is reviewing Foreign Investment Fund (FIF) tax rules to further attract investors.

If you know anyone considering a move to New Zealand who might qualify for the Active Investor Plus Visa program, please pass along this information. We can also provide investment services to help them meet the program's requirements.

For more information, please visit their website.

End of tax year reminders

Just a quick reminder to ensure your Prescribed Investor Rate (PIR) is accurate for your Portfolio Investment Entity (PIE) investments before the tax year ends on 31st March, 2025.

Why is this important?

• Accurate Tax: Your PIR directly determines the tax you pay on your PIE investments. Incorrect rates can lead to overpayments or underpayments.

• PIR Calculation: PIE tax is calculated based on your specific PIR.

Need to check or calculate your PIR?

• Refer to the following PIR table:

• If you need help to calculate your PIR rate, please click here.

Action required:

• Please review your PIR details.

• If you believe your PIR is incorrect, please contact us immediately so we can update this information on your PIE investments managed through us.

Ensuring your PIR is correct will help you avoid any potential tax complications. Thank you for your prompt attention to this matter.

Trilogy Investment Update - February 2025

We hope everyone is settling well into the new year. This update will cover key market indicators, discuss emerging opportunities, and offer our perspective on the current economic climate to help you make informed investment decisions.

The New Zealand Monetary Policy Committee (i.e., Reserve Bank) lowered the Official Cash Rate (OCR) by 0.50% to 3.75% last month. If economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025.

It is great for borrowers—especially those with mortgages coming up for renewal—but not ideal for savers who’ve been enjoying higher term deposit rates. If rates drop significantly, it could also push asset prices (like shares and property) higher, as investors chase better returns.

Even though interest rates are coming down, there are many options we can include for savers in the investment world to improve returns and achieve your long-term goals.

Global political and economic landscapes are shifting, with central banks facing pressures from ageing populations, de-globalisation, climate change, and technological advancements. Fiscal policies are likely to become more expansionary, with both radical and moderate leaders increasing spending on defence, AI-driven education, and climate initiatives.

Inflation remains a key concern, particularly in the US, where recent high consumer price levels and Trump’s policies may keep rates elevated. The Fed is expected to hold rates until inflation shows signs of decline. Geopolitical tensions, including the Middle East and Russia-Ukraine discussions, may bring market stability, while safe-haven assets like gold have surged, hitting record highs.

As long as uncertainty persists, we can expect safe-haven assets like precious metals, such as gold, to rise in value. Gold has delivered impressive results, increasing by around 44% for the last 12 months and hitting multiple record highs. The metal has outperformed most major asset classes, with prices exceeding $2,935 per troy ounce this month, marking its strongest annual performance in over a decade.

Markets are expected to remain volatile in the short term but trend upward in the long run. In New Zealand, the slowing economy may prompt interest rate cuts, creating buying opportunities.

The NZ dollar has recently weakened, trading around 0.56 to 0.57 to the USD, below its long-term average of 0.62–0.65. At these levels, adding a hedge could provide added benefits to your portfolio. Additionally, it's important to keep an eye on the Chinese renminbi (RMB) against the USD, as potential tariff policy changes may prompt adjustments to China's exchange rate strategy.

Another area to watch is valuations, especially in the tech sector, which appears somewhat overvalued. Developments in Chinese AI could lead to price fluctuations in US AI tech companies. It remains to be seen whether lower-cost AI models like DeepSeek will continue to disrupt the market or if more powerful language models will maintain their lead in this highly competitive space.

In conclusion, diversification is essential for effective portfolio management. It involves spreading your investments across various asset classes, such as cash, bonds, property, and shares. Additionally, it's important to invest in different industries, like infrastructure or financials, and across different geographical regions, such as New Zealand and Europe.

If you would like to discuss your current portfolio, maturing term deposits, retirement planning needs, or any other financial matters, please feel free to give our office a call at 09 553 8928 or email us at info@trilogyfs.co.nz.

Sincerely,

The Team at Trilogy Financial Solutions

Market Update

Check out the latest interest rate update from our in-house Mortgage Specialist, Adrian Dale.

NZ

• Interest rates: In February, the Reserve Bank of New Zealand (RBNZ) reduced the Official Cash Rate (OCR) by 0.5%, bringing it down to 3.75%. This decision marks the fourth consecutive rate cut since August 2024, totalling a reduction of 1.75%. The RBNZ's move aims to stimulate the economy amid subdued activity and rising unemployment. Inflation currently stands at 2.2%, within the RBNZ's target range of 1% to 3%. The central bank has indicated the possibility of further easing throughout 2025 if economic conditions continue as projected. We expect the OCR to bottom out at around 3.25% (possibly over two quarter-percent cuts).

• Overall Outlook: Cautious optimism for the New Zealand market as we enter 2025.

• Business Confidence: At its highest level since 2021.

• NZX 50: New Zealand equities have remained relatively flat since the start of the year. Historically, lower interest rates have often spurred market activity, and we believe the anticipated rate cuts could provide a similar boost to the NZ market.

• Key Sectors: Energy and infrastructure present growing opportunities.

• Tech Companies: New Zealand tech companies remain attractive to investors.

• Restructuring/Liquidations: May offer strategic entry points for savvy investors.

US & Trump policies

• US Consumer Spending: Currently supported by wage gains, wealth, savings, and confidence. However, lower-income consumers face risks from sustained high interest rates.

• Tariffs: Potential for increased tariffs on China (and possibly Europe), with a small chance of universal tariffs. Tariffs act as a tax on US consumers and will likely increase domestic inflation.

• Immigration: Potential deportation of illegal immigrants (legality uncertain). Reduced immigration lowers labour supply, which is inflationary.

• Taxes: Potential corporate tax cut from 21% to 15%, increasing the fiscal deficit and potentially pushing government bond yields higher due to increased issuance.

• Oil: Proposed increase of 3 million barrels/day to offset inflationary impact of other policies. Difficult to achieve due to shale companies' reluctance to operate at lower oil prices.

  
  

Economic backdrop

• Fiscal Policy: Investor concerns are rising about large and persistent deficits in developed markets. These deficits necessitate increased government bond issuance, putting upward pressure on interest rates.

• Inflation: Global disinflation is happening but stalling above target in most regions. UK inflation may rise due to base effects, but economic weakness could lower it medium-term. US inflation faces upside risks from tariffs and immigration policy.

• Market Dynamics: Strong US dollar impacting emerging markets; rising trade tensions; higher dispersion across stocks/styles/sectors/countries expected; tech (especially AI) offers opportunities. Geopolitical conflicts and trade restrictions pose risks. Diversification and careful monitoring are crucial.

Welcome to 2025

We hope you’ve had a relaxing summer break.

We are excited for a promising year of investing ahead.

The team at Trilogy is back, refreshed, and ready to assist you with all your investment, lending, and financial planning needs.

Please note that Chiti remains in Sri Lanka and will be back in the office after Waitangi Day.

He will be working remotely, though, so if you have any urgent matters, please feel free to contact him via WhatsApp or FaceTime.

As always, we encourage you to reach out to us with any questions or concerns.

We have a host of fund managers scheduled for interviews throughout the year, providing valuable insights into the market.

Next month, we have an exciting guest lined up for an interview. Please stay tuned for more details!

We look forward to working with you in 2025.

If you have any queries or concerns about your financial, investment, lending, or retirement planning matters, please feel free to give our office a call at 09 553 8928 or email us at info@trilogyfs.co.nz.

Sincerely,

The Trilogy Team

Things to watch in 2025

Here are some key things to look out for in the markets in 2025.

1. NZ market may outperform: Low valuations, underweight positioning, and improving economic conditions could drive NZ share market gains.

2. NZ interest rates to fall further: To invigorate the economy, we anticipate further reductions in New Zealand's Official Cash Rate (OCR). The neutral cash rate is projected to hover around 3.50% in the medium term. A decrease in the OCR will likely lead to a further decline in short-term mortgage rates. However, long-term mortgage rates (2-, 3-, and 5-year terms) may not experience a substantial drop due to persistently high borrowing costs in the global debt market. Since most New Zealand banks rely on overseas debt markets, global interest rates significantly influence domestic interest rates.

3. US policy uncertainty: Trump's policies (tariffs, tax cuts) pose risks and opportunities. Bessent's appointment may moderate some of these.

4. US exceptionalism may fade: Rising US interest rates and the potential for stagflation (inflation remaining high, an increase in unemployment, and low economic growth) could weaken the USD. Managing the currency exposure becomes important when there is currency volatility.

5. Australia faces challenges: High inflation, rising rates, and a slowing economy create headwinds for the Australian economy.

6. Inflation may remain elevated: Core inflation remains above pre-pandemic levels, despite recent disinflation in some areas.

7. Equity returns may be modest: Historical data suggests that equity returns after a few good booming years can be modest. However, it’s important to have exposure to growth assets to hedge against inflation and achieve potential higher returns than cash over the long term.

8. AI intensifies climate impact: Growing AI and data centre energy consumption poses challenges for climate goals.

9. Geopolitics may gain importance: Middle East tensions and the risk of a global trade war could impact markets.

10. NZ may increase private market investments: The growing private credit market, maturing VC sector, and lower expected equity returns may drive this shift.

11. Emerging risks: Bird flu, climate change, solar flares, and potential nuclear fusion breakthroughs are among the potential tail events.