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  • Monthly Review – September 2020

    15th October, 2020
  • New Zealand

    New Zealand has officially experienced an economic recession after two consecutive quarters of negative growth in 2020. NZ has experienced one of the worst economic recessions in the world but is also expected to experience one of the biggest recoveries, due to returning to a less restrictive environment faster than most countries. Despite the expected bounce back economic activity is not expected to return to pre-Covid levels for two years. Forecasts are conditional upon unknown factors such as when a vaccine may be widely available and when the NZ border will re-open.

    The NZ Share market rose by 1.10% over the month. Year to date it’s down -0.81%.

    Global

    We are awaiting the results of the US elections. Predictions are for a ‘blue wave’ with Biden becoming president and the democrats winning control of the Senate. Economists expect there to be greater fiscal stimulus in the short term with higher taxes in the long term. Should Trump win the financial market response is likely to be positive as he is typically seen as more business-friendly. Biden has flagged an increase int eh company tax rate from 20% to 28%.

    September is historically the most volatile month for share markets, perhaps due to most financial market participants in the Northern Hemisphere having just returned from summer holidays. This September lived up to that. The Nasdaq index traded within a 14% range. Month-end to month-end the index fell by 5.72%. The S&P 500 also declined by 3.80%. The Japanese market was up by 1.13%.

    How does this impact your investments?

    The Income Category returned -0.53% for September, taking the 12 month return to 1.49%. The return was driven predominantly by a decline in the long investment grade and high yield credit default swap positions. In the past government bonds have been a good hedge against share market declines, as they have increase din value as share markets have fallen. However with interest rates at record low levels government bonds are less attractive as a hedge.

    The Inflation Category returned -2.73% for the month, taking the 12 month return to -1.48%. There is a disparity in inflation rates. Essentially the price of goods and services we are now buying (books, PJs, bicycles) is rising much faster, while the price of items we are no longer buying has been falling (makeup, work suits, air tickets). How these different supply and demand pressures will track over the next 12 months is uncertain. It will be interesting to see how much inflation we actually get, in which parts of the economy. The Category is positioned for both eventualities.

    The Growth Category returned -5.29% for the month, taking the 12 month return to 6.00%. The Growth Category gave back some of the strong returns it achieved earlier this year, reflecting its overweight exposure to the US share market. However the US sharemarket has been the strongest performing sharemarket year to date and is expected to continue to be. Over the past six months the ‘stay at home’ tech companies have been the market leaders. Going forward to a vaccine the cyclical and value companies are likely to lead the recovery. NZ Funds has appointed Fisher Investments, a US based institutional fund manager, as a new external manager to the Category, to complement the existing external managers.

    Please contact us for the full September 2020 Monthly Review