A LUCRATIVE QUARTER, DESPITE THE VOLATILITY
Mark Lister, 6 April 2023
It’s been a whirlwind start to the year, but the March quarter wrapped up last week.
If you've had the good sense to ignore your investment portfolio or KiwiSaver balance, you'd probably guess it's been heading south of late.
After all, inflation remains high and interest rates are still rising, while the headlines have been dominated by cyclones in New Zealand and bank collapses offshore.
However, you'd be wrong.
Despite plenty of volatility along the way, the March quarter was actually a very lucrative one for investors.
The NZX 50, New Zealand's main sharemarket index, advanced 3.6 per cent during the first three months of the year.
That was its third consecutive quarterly increase, following gains during the second half of last year.
World shares were even stronger, rising 6.8 percent to build on the 9.4 increase we saw in the final three months of 2022.
The NZ dollar weakened against the US dollar, British pound and the euro during the period, which will have boosted returns even further for many investors.
Since the respective lows of June and October last year, local shares have rebounded 11.5 per cent and world shares have increased 18.0 per cent.
They’re still 13.0 per cent and 14.5 per cent below the all-time highs from January and November 2021, but it’s been a very healthy rebound nonetheless.
It's not just shares that have performed well during the past few months. Conservative assets like bonds and fixed income also had a strong March quarter.
The Bloomberg US Treasury Index returned 3.0 per cent, its best performance in three years while the NZX Corporate Bond index rose 2.4 per cent, the strongest quarter since mid-2020.
Whether you’re a conservative investor or a growth investor, or something in between, you’re almost certain to be solidly up so far in 2023.
That’s a far cry from a year ago, when everything was falling in unison.
However, whether this continues or not is another story.
Markets have been encouraged by a more resilient global economy in 2023. Europe is in better shape than many expected, while activity in China has been rebounding strongly from a very weak 2022.
There have also been some improvements on the inflation front.
While still far too high, the annual inflation rate is at its lowest since late 2021 in the US and it’s below pre-Ukraine invasion levels in Europe.
This has fuelled hopes interest rates will soon plateau, while the banking crisis has (somewhat ironically) helped in this regard.
The Official Cash Rate is sitting at 5.25 per cent here in New Zealand, just above its US equivalent. Markets are betting there’s only one further increase in the pipeline, ion both countries.
However, there's no room for complacency.
Inflation feels a bit stickier here than overseas, which our consumer price index (CPI) report on April 20 might confirm.
We should also brace for worsening economic news in the months ahead, and keep an eye out for the associated impact on corporate earnings.
We'll get some good international leads on the latter next week, with the US quarterly earnings season set to kick off.
Big banks like JPMorgan and Wells Fargo will be some of the first to report, with a plethora of major global companies following in late April and early May.
This quarter is expected to be the weakest since June 2020 (when COVID-19 first hit), although analysts are projecting earnings growth of about 1.5 per cent for 2023 overall.
That’s down from forecasts for almost eight per cent six months, although if there is a more pronounced slowdown ahead it could still prove a little optimistic.