June Market update – the continued sprint back to the top

07 July 2020

What goes down, must come up. I like to think of the recent market volatility in the form of stairs and elevators. The two-second elevator ride down, and the steady trek back up the stairs, level by level, to the top.

We’re almost there: global share markets are getting closer and closer to their highs and currently sit only 9% below their previous peaks in February.  

Importantly for KiwiSavers, this means that their KiwiSaver funds are also not too far away from their previous peaks – at kōura, a “growth portfolio” was sitting only 6% away from its February highs at the end of the month.

 

Market returns

kōura fund returns

 

1 month

3 months

12 months

1 month

3 months

NZ Equities (NZX50)

5.2%

16.9% 

9.0%

3.7%

15.5%

US Equities (S&P500)

2.0% 

20.5%

7.5%

0.7%

16.4%

Emerging Markets (MSCI:EM)

7.4%

18.2%

1.7%

4.7%

8.7%

Rest of World (MSCI:EAFE)

2.7%

12.8%

(3.8%)

2.1%

11.0%

NZ Fixed Income

(0.4%)

2.6% 

5.7%

0.3%

3.8%

kōura Growth Fund equivalent

 1.7%  12.0%

 

 Whilst growth in June was lower than in previous months, the growth was solid in the context of increasing global COVID infections, delays in re-opening for some US states, and civil unrest in the US. Markets continue to jump higher on the slightest good news and are at shrugging off the bad news.

The continued market performance is being driven by the liquidity lolly scramble being provided by the US Federal Reserve. With long term interest rates well below 1%, and likely to stay that way for a very long time investors don’t have many options, a volatile share market is seen as a much better bet than bank accounts returning nothing and bonds returning 1-2% at best.  

This lolly scramble is perpetuated by the massive Government Stimulus programs.  Investors are increasingly confident that Governments will spend whatever it takes to avoid the worst-case financial outcomes, particularly with a US election coming in late 2020 and a President who sees stock market performance as a key barometer of how well he is doing his job.

One very pleasant surprise was Emerging Markets. Emerging Markets had a strong month as they appear to be further through the recovery process than a number of their more developed counterparts. Korea, China, Taiwan, and Hong Kong (over 65% of the MSCI emerging markets index) have done very good jobs containing the virus, and where outbreaks have occurred have managed to stop them quickly.  Bloomberg even went as far as reporting that Emerging Markets were likely to have lower volatility than their more developed counterparts over the next few months given how well they have dealt with the virus.  

In the Rest of the World, mixed outcomes from different levels of lockdown are setting the scene. The UK is facing a struggling uphill battle as social distancing measures are being eased by the government, despite the number of active cases still being troublesome. This is further compounded by the current round of Brexit negotiations which seem to be putting a no-deal Brexit back on the table. Europe is looking good for a change, European borders have been opened as countries are desperate to restart their struggling tourism sectors between countries. Even more incredibly, a co-ordinated stimulus was agreed to by the European Central Bank for a whopping £1.35 Trillion, with Chancellor Angela Merkel expected to give a green light to the massive package. 

Meanwhile, in New Zealand, the NZX had a positive performing month. Unlike previous months where the outperformance has been dominated by Fisher Paykel Healthcare and A2 Milk, the emergence from lockdown has seen high optimism and spending rebounding stronger than anyone expected. Increasingly, people are looking at NZ as a safe haven, and the New Zealand share market performance reflects that!

 


Choose the right fund. Choose kōura.

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