INSIGHTS

MARKET SUMMARY: 30 OCTOBER TO 3 NOVEMBER

Libby Sharp, 3 November 2017

October was a positive month for equities across the globe. The NZX50 made a healthy 2.72% gain for the month, marking its tenth positive month in a row. The local bourse is now up 18.39% for the year, putting the index in a healthy position as we head into what is traditionally a strong period for equity markets.

Market darlings a2 Milk and Synlait Milk were the top performers in October rising 34.84% and 23.83% respectively. Comvita also had a strong month, rising 13.47%, boosted by positive sentiment following its AGM. All three companies have large offshore earnings and, as such, benfitted late in the month by a weaker New Zealand dollar.

The worst performer on the NZX 50 was Fletcher Building, finishing the month down 7.88% after yet another earnings downgrade for its Building & Interiors segment. FBU appointed Ross Taylor as its CEO on the same day it announced its profit downgrade, so the appointment was swept aside as investors focussed on the additional losses. Sky TV fell 7.41% for the month to be the second worst performer. SKT has struggled to gain traction as competition in the pay TV arena ramps up and subscriber numbers continue to fall.

The NZ dollar weakened during October, as markets took a cautious tone following the formation of the new Government. This was one of the biggest events on our calendars, after the September 23 election failed to find an outright winner. The balance of power was with Winston Peters and the NZ First party. In true Winston style, he was not to be rushed, making us wait almost a month before forming a Coalition with Labour. This made Jacinda Ardern the 40th Prime Minister of New Zealand, while Mr Peters was made Deputy.

However, the NZ dollar rebounded this week after better than expected labour market data. The unemployment rate fell to 4.6% in the third quarter of the year, from 4.8% in quarter two. This is the lowest unemployment rate since December 2008. In addition to this, the labour force participation increased to 71.1%, an all-time high. Importantly, wage growth was strong for the quarter, up 1.9% on an annualised basis, in line with third quarter inflation.

Across the Tasman, the ASX 200 gained 4.00% in October, logging its strongest month of the year and ending a five month losing streak. All sectors on the Australian bourse finished the month in positive territory, led by the tech sector. The real estate sector was the weakest, with just a 1.27% rise.

The Australian dollar has had a rough time of late, falling sharply after the Australian High Court disqualified five Members of Parliament, including Deputy Prime Minister Barnaby Joyce, for having dual citizenship. Mr Joyce’s disqualification means that the Coalition has lost its one seat majority in the House of Representatives. He has now renounced his New Zealand citizenship and has put himself forward for re-election.

The Nikkei in Japan had an exceptional performance in October, rising 8.13%. The export heavy index benefitted from a weaker yen, strong earnings and the re-election of Prime Minister Shinzo Abe. The Bank of Japan met during the week and maintained its massive quantitative easing programme, giving further support to equity markets. The central bank also pared back its inflation forecasts.

In the US, reporting season continues and we have seen some very strong results, which have helped to push indexes to all time highs again. All three of the main indexes gained in October, with the Dow Jones showing the strongest performance, up 4.34%. The S&P 500 gained 2.22% while the Nasdaq gained 3.57%. The US Federal Reserve took centre stage this week and while no changes were made, the statement showed a change in language indicating a more positive view on the US economy.