Monthly View.

Interest rates fell over the month of September and for the first time in New Zealand some market rates went negative. Into the tail end of the month government bonds with maturities out to 5 years were providing negative yields. This implies that a purchaser of these bonds, if they held to maturity, would receive a negative return on their investment.

August is the peak reporting season for companies with a June balance date. It is the first period that included the effects of the COVID-19 virus and an opportunity for investors to reassess the outlook for companies.

Fixed Interest investors and share investors adopted diametrically opposed positions in the month. Fixed interest investors continued to drive down interest rates as demand for fixed interest products remained strong.

Investor returns in the June quarter have been very strong. Economists have argued that share markets have become disconnected from real world conditions. While these concerns are valid there are also grounds for the rebound as a business recovery is underway and massive liquidity has been injected into the financial system.

Despite most of the world remaining in lockdown of one form or another, share markets continued to rise in May throughout the world. In part the improvements reflected relief as progressively the restrictions on daily life were removed and the prospect of economic activity returning to pre-COVID 19 levels was glimpsed.

Share markets throughout the world bounced in April. After the large falls in March prices recovered strongly. The American NASDAQ market was up 15.5%, the largest monthly increase since 2000. New Zealand shares also improved with the NZ 50 index up 7.5% in April.

COVID 19 has impacted all asset classes and all countries. Equity values have quickly fallen, and already low interest rates have been driven even lower.  The speed of the virus onset and its reflection in investment markets has been unprecedented with the decline the steepest in the S&P500 since 1929.

Investor optimism for the year ahead has already been challenged in January by non-economic events. The year commenced with an escalation in hostilities between Iran and the United States.The protagonists were able to calm relations and avoid escalation. Specifically, in Australia the bush fire season has been particularly severe with over 5 million acres burnt. This was subsequently followed by the Coronavirus outbreak in China.

Sharemarkets regained confidence in November. Both the US and New Zealand equity markets achieved record highs.

Investors are considering market information as to whether to retreat to safety or continue to pursue returns from more risky positioning. October returns were driven by sentiment relating to the immediate impact of interest rate policy and the ebb and flow of US China trade negotiations. Consensus economic growth outlook improved over the month.