Market Update - January 2020

04 February 2020

January has been a month of two halves with improving growth due to the signed US/China trade deal & the Coronavirus

 

  Local Currency Returns NZD Returns kōura Fund Returns
  1 month 12 month 3 years 1 month 12 month 3 years 1 month Since Inception
NZ Equities 2.0% 30.4% 18.4% 2.0% 30.4% 18.4% 2.3% 7.2%
US Equities (0.0%) 21.7% 14.5% 4.2% 30.4% 19.4% 2.2% 5.8%
Emerging Markets (3.3%) 6.9% 9.2% 0.8% 14.6% 13.9% (1.9%) (0.9%)
Rest of World (1.2%) 14.6% 7.7% 3.0% 22.8% 12.3% (0.9%) 0.7%
Fixed Income 1.7% 6.2% 5.6% 1.7% 6.2% 5.6% 1.0% (0.4%)
KiwiSaver Growth Fund (0.4%) 17.2% 11.2% 2.1% 22.2% 14.0% 0.4% 2.7%

 

We entered January in a period of calm, many of the big global risks appeared to have passed:

  • President Trump finally got his long-awaited trade deal on 15 January, bringing a de-escalation in the trade war that threatened to significantly reduce global growth
  • With a strong performance from the Conservative party in mid-December, a controlled Brexit (or the very first phase) was assured 
  • Global growth was starting to look up with a number of stronger than expected growth readings out of China and Europe
  • We have seen President Trump’s impeachment process wrap up in the Senate and are likely to have that resolved in early February

Between 1 December and the peak on 20th January, global markets were up between 4-9% with emerging markets being the strongest performers as a result of the US / China trade deal being signed. 

And then all of a sudden the Coronavirus appeared.  Markets peaked on 20th January and have been in free fall ever since, as investors have started to assess the impact of the Coronavirus.  As at 31 January, markets had fallen between 3 and 6% with emerging markets having had the greatest fall (given China makes up a significant part of the emerging markets index).

 

Coronavirus Impact

Investors are very nervous about the Coronavirus due to its potential impact on global growth.  The largest and most significant economic impact will be to the global tourism sectors where the Chinese have become one of the world’s most prolific sources of tourists and the past week has been the busiest tourism week in China as a result of Chinese New Year.

Putting aside all of those people that are not going overseas, those inside of China are staying at home and spending significantly less than they otherwise would.  The country has effectively shut down with the Chinese New Year break being extended to allow people to stay home. Apple recently closed all of its stores in China and a number of other retailers will shortly follow suit.  All of this will have flow-on effects on global consumer and food products. 

You can see from the chart below, that previous health crises have had a negligible impact on share markets (Swine Flu, SARS and Zika), all of these outbreaks resulted in a significantly positive 6-month performance after the first outbreak.  A number of commentators are saying that this time could be different and have a more negative affect, though only time will tell. 

markets in epidemic

The New Zealand market has remained relatively resilient through this with the market basically remaining flat since January 2020.  The companies with a heavy tourism exposure (Air NZ, Auckland Airport, Sky City and Tourism Holdings) have all reduced, though this is offset by improved confidence in the NZ economy driven in part by the significant government infrastructure announcements.

At times like this, we are very happy to be a passive investor and not have to make the tough decision of trying to pick the bottom.  We trust our asset allocation and long term strategy!

 

 kōura Update

kōura is now almost 4 months old. In that time we have managed to generate over $4 million in AUM from over 100 customers. We are pretty happy that since we launched our funds at the end of October, a typical investor invested in a growth fund would have had a return of 2.7% since launch. 

Want to read more about what we've been up to at kōura in January? Click here

 

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