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KiwiSaver Investment Markets Update – July 2015

Market Update – July 2015

Global Shares

Global share markets gave up some earlier gains during June, although for New Zealand investors this was fully offset by a 6% fall in the New Zealand Dollar, which increased the value of overseas investments in NZD terms.  Economic confidence levels around the world suggest that overall growth is continuing at around a 3% annual pace – a moderate level on par with the average of the past few years.  However, share markets were rattled in June by a lack of agreement on terms for extending the support that Greece has been receiving from organisations such as the International Monetary Fund, which also had some effect on NZ and Australian markets.  While this might see an eventual outcome where Greece could leave the Eurozone, looking beyond any short-term volatility policymakers have a number of new tools to help manage this process should it occur while the rest of Europe is in comparatively much better economic shape.

New Zealand Shares

Economic data released throughout the month continued to indicate a slowing rate of growth of the New Zealand economy – dairy prices continued to fall; consumer, business and rural confidence were slightly weaker than expected; and most importantly, growth in GDP over the past year grew at a slower rate. This flowed through to New Zealand sharemarket returns easing off slightly in the month. Despite this, the sharemarket was extremely active in terms of events during the month with a number of potential acquisitions being announced including Freedom Foods’ takeover of A2 Milk, Briscoe Group’s takeover of Kathmandu, and Z Energy’s takeover of Caltex New Zealand. The listed electricity generators also continued to face some uncertainty from an upcoming decision on continuation of the New Zealand Aluminium Smelter at Tiwai, a key user of electricity in the New Zealand market.

Australian Shares

The Australian economy saw a surprising amount of positive economic data during the month, as GDP growth was higher than anticipated, housing starts remained elevated, and unemployment fell more than expected. However negative sentiment out of China weighed heavily on investors, and any companies that provided softer updates were not treated kindly. This led to the wider market declining 5% for the month, but as was the case with global share markets, the fall was offset by currency movements with the Australian market finishing flat in NZD terms. Consumer stocks like Woolworths and Flight Centre forecast lower earnings, and energy companies fell as the global outlook for oil deteriorated. Despite this, though, the health care sector fared well with Sonic Healthcare announcing the acquisition of Medisupport SA, the market leader in Switzerland for pathology services.

Interest Rates

Global bond rates were a story of two halves. Initially rates were led higher by strong US economic confidence which increased the likelihood of the Federal Reserve increasing the Federal Funds rate later this year. However, as the deadline for Greece repaying their loan to the IMF grew closer, global bond rates reversed some of their rise as investors are looked at the likely flow-on effects for central bank policy in other countries outside of Greece.  In New Zealand, the Reserve Bank surprised the market by reducing the Official Cash Rate (OCR) earlier than anticipated from 3.50% to 3.25%. Given the falling dairy prices, the low inflationary environment and the slowdown in economic data, the Reserve Bank has cited that further easing to the OCR would be appropriate if emerging data were to weaken further. The market is currently expecting a further two cuts to OCR by the end of the year.

Summary of Market Movements as at 30 June 2015

Share Markets 30/06 31/05 1 Month Return 3 Month Return 12 Month Return 3 Year Return (p.a.) 5 Year Return (p.a.)
NZX50 5,727 5,845 -2.0% -1.8% 11.4% 19.0% 14.0%
ASX 200 (local) 48,602 51,325 -5.3% -6.5% 5.7% 15.1% 9.7%
ASX 200 (NZD) 55,235 55,230 0.0% 4.3% 11.4% 10.7% 8.0%
MSCI (local) 3,531 3,636 -2.9% -0.5% 8.5% 17.1% 13.9%
MSCI (NZD) 6,929 6,738 2.8% 11.4% 32.0% 21.4% 13.7%
Fixed Interest Markets 30/06 31/05 1 Month Change 3 Month Change 12 Month Change 3 Year Change (p.a.) 5 Year Change (p.a.)
NZ 10-Yr 3.63 3.63 0.00 0.40 -0.78 0.20 -1.71
US 10-Yr 2.35 2.12 0.23 0.43 -0.18 0.71 -0.58
NZ OCR 3.25 3.50 -0.25 -0.25 0.00 0.75 0.50
Currencies 30/06 31/05 1 Month Change 3 Month Change 12 Month Change 3 Year Change (p.a.) 5 Year Change (p.a.)
NZD vs. USD 0.6762 0.7115 -5.2% -10.9% -29.5% -5.9% -0.3%
NZD vs. AUD 0.8799 0.9293 -5.6% -11.5% -5.4% 3.8% 1.5%
MSCI Weighted NZD -5.7% -11.9% -23.5% -4.3% 0.3%
Commodities 30/06 31/05 1 Month Change 3 Month Change 12 Month Change 3 Year Change (p.a.) 5 Year Change (p.a.)
CRB Index 227.2 223.2 1.8% 7.2% -26.3% -7.2% -2.6%
Oil 63.6 65.6 -3.0% 15.4% -43.4% -13.4% -3.2%
Gold 1,172 1,189 -1.5% -1.0% -11.4% -9.9% -1.2%

Content for this newsletter kindly supplied by the Grosvenor Financial Services Group
Disclaimer The information contained in this newsletter is given in good faith and has been derived from sources believed to be accurate.  Neither Grosvenor Financial Services Group Limited (GFSG) or any other associated companies of GFSG nor any of their employees or directors or any other persons gives any warranty of reliability or accuracy nor accepts any responsibility arising in any other way for errors or omissions. Historical performance may not reflect the future performance. This report is not intended as promotional material and is not to be regarded as a securities recommendation. A disclosure statement is available, on request and free of charge, from your adviser.

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Mike Bennett

In 1985, after 7 years in the banking industry in NZ & London, Mike Bennett joined the Life Insurance Industry as an adviser. In 2001 he started “Acorn Insurance & Investment Ltd” with the key principle; “to satisfy the insurance and investment needs of New Zealanders with the best products and service possible”. To achieve the guiding principle of “best products and service” the “Acorn” uses various industry research tools to identify the best products and prices to meet our client’s needs. Acorn has agencies with most of New Zealand’s major insurance companies which means we are free to use whichever products best meet our client’s needs. Believing that if we get it right for our clients we will achieve win-win solutions. We also recognise that nearly all insurance solutions are a compromise between the benefits you’d like to have versus the premiums you’re prepared to pay – with this in mind we WON’T be trying to sell you more insurance than you need or want !!

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