Investment market performance - June 

Following a strong start to the new decade, share markets around the world fell sharply from mid-February as COVID-19 spread across the globe, shutting down economic activities wherever it appeared, including here in New Zealand. Global equities1 fell 20% for the quarter (NZ equities2 fell 15%). The sectors hit hardest include consumer discretionary, financials, energy and industrials while healthcare, utilities, tech and consumer staples have held up the best. At one point in March, panic selling saw the VIX index, a widely followed measure of market volatility, reach an all-time high, surpassing the level reached at the height of the global financial crisis in 2008.

Conversely, the fixed interest sector saw gains as the yields on government bonds fell to record lows in some countries. Global government bonds3 gained just over 2% while corporate bonds4 fell nearly 4%, mostly impacted by the energy sector. NZ Bonds5 gained 2.5% over the quarter. In commodities, the oil price experienced its worst decline in a quarter on the back of an unexpected dispute between Russian and Saudi Arabian producers, and reduced demand due to the virus.

In the latter half of March, both governments and central banks across the world coordinated responses by announcing extraordinary fiscal and monetary policies in a bid to help workers and businesses affected by the tremendous scale of economic disruption, and firmly position economies for recovery. In turn, these announcements helped stabilise financial markets towards quarter-end. In hindsight, this intense volatility experienced in the first quarter of 2020 is certainly one for the history books.

Outlook:

The COVID-19 contagion is an unprecedented global health crisis, and no one can predict precisely how long it will last. While the rate of growth of the COVID-19 cases has slowed overall, globally new cases are being fuelled by high plateaus in countries like the US and emerging markets like Brazil, India and Russia. This means that a high level of market volatility is likely to persist. Success in tackling the virus in countries like New Zealand and Australia highlights that regional and sectoral differences will be pervasive. However, a note of optimism is being felt in financial markets as various regions across the globe are gradually resuming economic activity on the back of slowly easing of lockdowns.

Over the past 100 or so years, global financial markets have experienced some significant crises and while each crisis was unique, the common theme for all of them was they ended, and financial markets eventually recovered. In this sense, this time should be no different. As financial markets are likely to keep evolving in a period of higher than usual volatility, ensuring your portfolio is well diversified across different asset types, securities and investing styles remains a really important strategy. 

 
1MSCI ACWI Net Accumulation Index
2S&P/NZX50 Index Gross
3Bloomberg Barclays Global Treasury 1-20yr Index (100% hedged to NZD)
4Bloomberg Barclays Global Corporate 1-10yr Index (100% hedged to NZD)
5Bloomberg NZBond Composite 0+ Yr index
This information has been prepared by Mercer (N.Z.) Limited for general information only. The information does not take into account your personal objectives, financial situation or needs.This information has been prepared by Mercer (N.Z.) Limited for general information only. The information does not take into account your personal objectives, financial situation or needs.

2 June 2020