Wealthpoint - Market Update May 2022

Market Update to 30 April 2022 May 2022

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Wealthpoint Market Update

May 2022

What happened After positive returns in March the global equity market sold off sharply again in April, extending the drawdown year to date. As strict lockdowns continued in some of China’s largest economic centres, investors grew increasingly concerned over the impact on global supply chains and economic growth. The war in Ukraine also intensified and harsher sanctions were levied on Russia, leading to further negative market sentiment. While the release of negative GDP growth for the March quarter in the US and the inversion of the yield curve raised concerns of a recession.

Reduced demand from China, the world’s largest energy importer, initially placed some downward pressure on the oil price.

However, the ongoing conflict in Ukraine continued to raise investors’ concerns over oil supply from Russia. The price of oil remained elevated in its newfound range throughout the month, closing April at US$ 105 a barrel.

priced in a 0.5% rate rise for May as increasingly hawkish Federal Reserve rhetoric indicated a more aggressive approach to monetary policy. As a result, the US 10-year yield rose over 0.5% during the month, driving significant losses in fixed income assets around the world.

However, the signalled action from the Federal Reserve stood in stark contrast to the European Central Bank, which maintained interest rates at zero. The Bank of Japan also decided to continue its low yield policy. On the back of this divergence the US dollar soared to the highest level since 2002.

Back in New Zealand, annual inflation came in at 6.9%, with the Reserve Bank raising the Official Cash Rate (OCR) to 1.5% with a 0.5% rate hike during the month, the most aggressive hike in 22 years. The upward pressure that this causes on mortgage rates is expected to prompt further slowdown in the already weakening housing market.

Inflation continued to rise rapidly in many parts of the world. The release of data from March revealed that US inflation was 8.5% over the year and that jobs growth remained strong. In response, the market

Prepared by Makao Investments on behalf of Wealthpoint Limited.

Wealthpoint Market Update

May 2022

Asset class performance to 30 April 2022 NZ Fixed Income

Global Fixed Income

NZ Shares

Australian Shares

Global Shares

Global Property

Month

-2.2%

-2.8%

-1.9%

-0.9%

-6.5%

-3.9%

3 months

-5.2%

-6.0%

0.0%

8.2%

-6.6%

-1.6%

One year

-9.2%

-6.6%

-6.7%

10.2%

-1.5%

6.3%

One year vs. history

Bad

Bad

Poor

Normal

Poor

Normal

Source: Refinitiv Datastream, Makao Investments

Looking back Global shares declined by 6.5% over the month with notable losses in companies dependent on future growth. In a relative sense, New Zealand and Australian shares were less impacted by the sell off. Australian shares performed well over the quarter, with an 8.2% return, as large exposure to the materials and financial sectors continued to benefit the market.

New Zealand and global fixed income sold off, as higher inflation was priced into bond yields. A continued trend of

tightening monetary policy in response to inflation, with the RBNZ raising the OCR by 0.5% and hawkish US Federal Reserve rhetoric, has led to significant volatility in fixed income markets. Over a historically difficult period for the asset classes, both global and New Zealand fixed income returned ‘bad’ one year performance relative to the last 20 years, an outcome that we would expect to see less than 5% of the time.

Wealthpoint Market Update

May 2022

New Zealand Dollar to 30 April 2022 Month 3 months One year

NZD/USD

NZD/EUR

NZD/JPY

NZD/GBP

NZD/AUD

-6.8%

-0.9%

-0.4%

-1.8%

-1.7%

-1.1%

4.8%

11.9%

6.1%

-2.3%

-10.3%

3.4%

7.8%

0.3%

-2.1%

Source: Refinitiv Datastream, Makao Investments

Given the volatility of the New Zealand dollar, the rate rise from the RBNZ was broadly offset by global negative market sentiment during the month. Rather investors flocked to safe-haven currencies such as the US dollar, with rising interest rates providing tailwinds for the currency. Historically, the Japanese yen has performed well in market drawdowns too, however this was not the case during the April sell-off.

Wealthpoint Market Update

May 2022

New Zealand shares April 2022 performance, in %

Fisher & Paykel Healthcare (FPH) share price continued a downward trend over the month, shaving nearly 12% off the company’s value. A prior beneficiary of the pandemic, the stock gave back further gains in April as global Covid cases remain in decline.

Meridian Energy (MEL) shares slipped at the beginning of April, as dry conditions in Southland created headwinds for the stock. The company temporarily reduced its supply to the Tiwai Point Smelter, as low water levels affected power generation at their Manapōuri station. In addition, the stock fell further on the news that its weighting would be decreased in the iShares Global Clean Energy ETF. The a2 Milk Company, the largest stock in the New Zealand market not too long ago, was replaced

by EBOS Group Limited (EBO) in the NZX10. EBOS shares have gained more than 46% over the last year on the back of their success as a distributor of healthcare products in Australasia.

In contrast to the rest of the market, Spark (SPK) steadily rose over the month, as negative market sentiment drove investors to stocks with strong fundamentals and stable earnings.

Wealthpoint Market Update

May 2022

Disclaimer The information in this document 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 Refinitiv Datastream, however the information contained herein is not guaranteed and does not purport to be comprehensive.

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