Lending Update - August 2022

With news yesterday of a decline in annual median property values for the first time in over a decade, many Kiwis are looking to what may be next during these volatile times in the property market.

In today’s Trilogy update, we’re pleased to introduce our own Mortgage Specialist, Adrian Dale. Having previously worked for another mortgage broking company, Adrian joined us as a specialist adviser at the start of 2022. Adrian is passionate about delivering service and results for all our lending clients – from those who are looking for their first home, to those looking to add to substantial property portfolios.

In today’s update, Adrian sits down with our paraplanner, Cam, to offer his insights into what is happening in the mortgage market at the moment, which lender offerings are particularly standing out to him, and where he sees the mortgage market headed throughout the rest of 2022.

Disclaimer: This video is for information purposes only and should not be treated as financial advice. To the extent permitted by law, Trilogy Financial Solutions NZ Limited, do not accept any responsibility or liability arising from your use of this information.

Market Update: August 2022

What happened

The past month has seen positive returns for all asset classes, this is on the back of economic data indicating that central banks’ actions may be working. The hopes that the slowing economic growth outlook may result in an easing of monetary tightening, coupled with broadly positive earnings results also contributed to the upbeat sentiment for the month of July.

Inflation continues to be a talking point with no clear signs of peaking just yet. The rate hike of 0.75% of the US Federal Reserve (Fed) indicates there are still inflationary concerns, but there has been less hawkish commentary from Fed chair Powell stating that “at some point rate hikes will slow down”. This was received positively and that sentiment filtered through to markets.

The Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of Australia (RBA) both increased rates by 0.5% in July to 2.5% and 1.35% respectively with further tightening expected. The Bank of England increased rates by 0.25% to take rates to 1.25% in the UK while their Prime Minister Boris Johnson put in his resignation amidst heightened political uncertainty. The European Central Bank increased rates by 0.5% for the first time in 11 years to cool rampant inflation.

Much of the rate hike action of central banks has been baked into markets and the surprises of the higher than expects actions has less of an impact and the expectation are longer term focused.

The International Monetary fund (IMF) downgraded the global outlook for growth from 3.2% for 2022 to 2.9% for 2023 and increased the inflation forecast. This gave markets an indication that actions of the respective central banks could be filtering through to the overheated economies and higher inflation expectations could ease.

Fixed income markets benefited from falling sovereign yields and tighter credit spreads. The US 10-year treasury yield fell 22 basis point for the month. With the NZ 10-year falling 29 basis points.

Asset class performance to 31 July 2022

Looking back

Annual performance to the end of July 2022 has been poor from all equity assets. All asset classes bucked the downward trend over the month, with Global Shares up 7.1%, as the severity of interest rate hikes was assessed to be lowering. The New Zealand & Australian share markets follow suit with better performances but underperformed global peers, both finishing up 5.7% for the month. The positive performance since the June lows as been spurred on by betterthan-expected CPI data which reduced the risk of central banks hiking rates.

New Zealand and global fixed income rose higher during July, as the expectation for central bank tightening eases along with the 10-year yield on US treasuries dropping to 2.65% after a June high of 3.5%. NZ 10-year treasury yields dropped 29 basis points.

Both asset classes returned just under 3% over the month as bond yields slid. However, with historically high inflation, their one-year performance continues to be bad relative to the last twenty years.

New Zealand Dollar to 31 July 2022

New Zealand shares

The New Zealand equity market finished positively for July, with all the NZX10 stocks in the green. This is on the back of better market sentiment and good news stories for a few key names. Mainfreight (MFT), the biggest outperformer in July, led the uptrend with an 11.4% rise. With most of the growth coming late in the month on strong performance data at the annual share holders meeting indicated very strong numbers for 2022.

Infratil (IFT) much like the rest of the NZX top 10 had a very good month with most of the returns coming toward to the end of the month on the back of big corporate announcements. Vodafone together with shareholders Infratil sold passive mobile tower assets for $1.7 billion.

Telecommunications company Spark (SPK) performed well through the month by selling a 70% stake in its mobile phone tower network TowerCo to the Ontario Teachers’ Pension Plan Board. The transaction values the TowerCo business at $1.175 billion. Representing a pro-forma multiple of 33.8x with net cash proceeds of $900 million.

Disclaimer

The information in this update is provided for general information only and is not intended as advice. Past performance is not necessarily a good indicator of future returns. Data for this document has been sourced from Morningstar Direct & RBNZ, however the information contained herein is not guaranteed and does not purport to be comprehensive.

Bearing with a Bear Market

We are in the midst of a particularly challenging time in the investment world, with volatility since the start of the year inspiring endless headlines about an uncertain future. If you have seen many of these eye-catching captions, you will have noticed one phrase has become particularly common the last couple of weeks: bear market. A bear market refers to a 20% decline from a high which we are currently seeing in many market indices around the world, such as the S&P 500 (500 of the largest companies listed on the US stock exchange) which is currently down 21.5% year-to-date (as at 22nd June).

This raises the question: how long will we be in bear market territory? The S&P peaked around 3rd January 2022 and since then the market has been volatile whilst sloping downward. Last Three Bear Markets

As shown in the table above, if you look at the last three bear markets: the Dotcom crisis from March 2000, the Global Financial Crisis from October 2007, and the February 2020 market downturn which was triggered by the start of the Covid pandemic, the longest one we have seen was around 2 and 1/2 years long. The current bear market is being caused by many factors such as, high inflation, rising interest rates, the war in Ukraine, the pandemic, lockdowns in China, supply chain issues, etc. Unfortunately, no one can predetermine the bottom of the market and we will only know the market has completed its dip once it has passed. The current 21.5% reduction has occurred over about 5.3 months, so far. Bear markets are characterised by low investor’ confidence and pessimism. During a bear market, investors often seem to ignore any good news and continue selling quickly, pushing prices even lower. While the journey to the bear has been accompanied by stomach-churning volatility, investors can take some consolation from the fact that the S&P 500 typically rebounds quickly after major drops. Three-year forward returns from the date when a bear market became official averaged 30% since 1957, with the U.S. S&P 500 sporting a positive return in all but one such occasion.

Whilst all the news about bear markets may seem doom and gloom, a bear market presents plenty of opportunity for investors which will be beneficial for long-term investment strategies. Trilogy’s Investment Specialist, Chiti, recently sat down with Booster’s Head of Growth, Dave Copson, to discuss the current market and how investors can take advantage of it. This interview can be found here and on our website, along with all our recent market updates:

https://www.trilogyfs.co.nz/news-updates

Some tips on how to invest during a bear market

1. Diversify your investments

2. Stick to your goals

3. Focus on long term

4. Dollar cost average

5. Seek qualified financial advice

If you have any questions, please don’t hesitate to contact us on:

09 553 8928

or

info@trilogyfs.co.nz

Kind Regards,

The Trilogy Financial Solutions Team