September 2022
Market Update to 31 August 2022
Russia’s political weaponisation of gas supplies impacted the region in the run up to winter, as the concerns that gas prices will surge could push CPI even higher and the probability of recessions ever increasing. The Bank of England increased rates by 50bps and did not shy away from implying a recession later in the year for the BondUK.markets
The soberingly hawkish speech from Fed Chairman Powell at the Jackson Hole Economic Symposium reinforced the use of restrictive policy to tame inflation and bring this inline with the 2% target rate. He warned that the higher rates, slower growth and softer markets will bring down inflation, but will result in some pain to households and businesses.
WealthpointMarket UpdateSeptember 2022
The month of August started with a strong performance on the back of a solid July and the understanding that peak inflation data had been priced in by markets. The S&P500 saw a 17% return from June lows to mid-august and then…. the summer party of the norther hemisphere stopped. With a mixed performance from key indices in the month, MSCI World index was 4.1% lower, S&P 500 down 4.1%, S&P/NZX 50 up 1.3% and the S&P/ASX 200 up 1.18% month-on-month.
Locally, Inflation numbers indicated a peak in Q2 at 7.3% but the RBNZ forecasts that the 1 to 2 year forward looking inflation numbers will be above that of the target band of 1-3% indicate the laggard nature of monetary policy and the importance of slowing consumption at a household level.
Europe and the UK were faced with similar headwinds and those unique to the region, causing a significant drop in equity markets. UK FTSE All-Share down 1.7% and the MSCI Europe ex UK down 4.7%.
Jobs number continue to tick up with business adding to headcount at 0.5% month-on-month. This increase is by nature inflationary, and the net migration flows do not shows signs of supporting the tight market
What happened
China battles on with continued Covid-19 lockdowns, weak economic activity and a struggling property sector. The People’s Bank of China (PBoC) has taken action in the form of easier monetary policy and economic stimulus of 1 trillion Yuan ($146 billion USD).
continue to be buffeted by the headwinds of broadly hawkish central banks causing yields to rise over the month with the US 10-year yield finishing at 3.20% and NZ 10-year yield up to 4% at the end of the month. The US 2 10 year yield curve remains inverted at this point, showing signs of near-term volatility, but the understanding is that bonds have made the adjustments to higher rates and the outlook for the sector is looking better.
2.7%1.4%1.2% 2.9% 5.6% 3
Source: Morningstar Direct
NZIncomeFixed IncomeGlobalFixed SharesNZ AustralianShares SharesGlobal PropertyGlobal Month
0.9% 1.7%2.9%
markets continue to battle against the hawkish central banks and continued rate increases. Both NZ and Global fixed income markets showing ‘bad’ annual performances. Only 4 out of the last 12-months and 2 out of the last 12months (respectively) showing positive returns.
Asset class performance to 31 August 2022
Looking back
WealthpointMarket UpdateSeptember 2022
We have seen the swings from Value to Growth and back again with a move of capital to companies with strong fundamentals and earnings resilience. But flow to value was not enough to override the negative sentiment in the Fixedmarkets.income
One year 9.3% -10.0%-10.7%-3.4% -11.5%-12.5%
The New Zealand and Australian markets eked out meeker gains through the month while the rolling annual performance continues to be comparatively poor. The resilience of a few value companies in New Zealand and in Australia as well as companies in Australia with commodity exposure attributed to the positive performance in the Propertymonth.andglobal shares continue struggled with poor annual rolling annual figures with the poor performance in property coming from the rising interest rate environment and the riskiness of global shares impacting returns. 2.8% months 2.4% 3.6% 6.0%
One vs.yearhistoryBadBadPoorPoorPoorPoor
Source: RBNZ
WealthpointMarket UpdateSeptember 2022
New Zealand Dollar to 31 August 2022
Another month of volatility with a mid month NZD rally against major trading pairs. From this point the NZD held its strength against the GBP and JPY with the UK facing fears of high CPI inflation & deepening recession woes and the JPY impacted by the Bank of Japan(BoJ) policy which is an outlier to the global monetary tightening approach.The USD and AUD took little regard for the mid month NZD rally by printing 20-year and 5-years highs respectively against the Kiwi and other trade currencies. There may be some positives on the horizon for the NZD as New Zealand Governments Bonds have will entered the World Government Bond Index (WGBI) on the 1st October 2022. The entry into the WGBI should see increased inflows and NZD volatility over the later part of the year.
NZD/USDNZD/EURNZD/JPYNZD/GBPNZD/AUD Month 2.6% 0.9%0.4%1.6% 0.6% months3 6.1%0.7%1.5%1.6% 1.8% One year -12.9% 2.6%9.5%2.6% 7.1%
New Zealand shares
Strong performance the month of August up 8.5% on the back of the earnings call mid-month. The company has seen net profits rise to $432 million compared to the $305 million the year before. A 42% increase. The company was support by strong economic data showing an increase in building consents issues, 5% up from the month prior.
Infratil:
FPH MFT EBO RYM MEL AIA CEN SPK IFT FBU -10 -5 0 5 10
August 2022 performance, in %
TheSpark:telco company reported earnings we positive and the market received these well with Spark up 6.3% for the month. The tailwinds from the previous months sale of mobile phone towers help push the return higher and attracted more investment on the intention that these funds will be reinvested into the growth of the company.
WealthpointMarket UpdateSeptember 2022
The resilient nature of Infratil’s earnings pull through this month as the stock show an 8.0% gain in August. These returns came from a holding in Longroad Energy. The US based renewable electricity development business raised capital and much increased revaluation of this business filtered through to Infratil.
Fletcher Building:
WealthpointMarket UpdateSeptember 2022
TheDisclaimerinformation 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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