US steams ahead while emerging markets struggle

World shares were up 5.7% in the six months ending 30 September. US shares were again the standout performer, with the S&P 500 rising 10.3% to fresh all-time highs. Japanese shares also performed well, gaining 14.0%, reaching their highest level in almost 30 years.

European and UK shares also gained solidly, albeit below other developed markets, gaining 3.3% and 6.4% respectively. Emerging markets, however, were particularly weak, falling 10.4% amidst economic upheaval in Turkey and Argentina and signs of slower growth in China. Chinese shares fell 10.7% over the six months.

Interest rates in the US continue to climb against a backdrop of a strengthening US economy and signs of inflation emerging. The important 10-year US Treasury yield rose from 2.74% at the end of March, to 3.05%. During September, the 10-year reached a high of 3.11%, its highest level since 2011.

After a turbulent start to the year, volatility in share markets has diminished. However, there are still a few factors causing nervousness for investors. At the top of this list is the ongoing trade tensions between the US and China, with President Trump announcing a raft of new tariffs on Chinese goods. This again saw retaliatory action from China. Meanwhile, rising US interest rates and emerging market weakness continue to occupy investors’ thoughts.

New Zealand and Australia provided solid returns

Closer to home, it was a good period for the New Zealand and Australian share markets. The NZX 50 gained 12.4% while the Australian market rose 7.8%.

The NZ dollar had another tough six months, falling 3.0% on a trade-weighted basis. The local currency fell heavily against the US dollar, down 8.7%, due to both a strengthening US dollar and concerns about slowing growth in New Zealand. The NZ dollar also fell 2.9% against the euro, 2.8% against the British pound, and 2.7% against the Australian dollar.

The weaker NZ dollar benefitted the returns from most global markets for local investors. The weaker currency also boosted share prices of locally listed companies that are either exporters or with either sizeable offshore operations, while hurting those reliant on imports.

While persistently weak business confidence has hogged the headlines, local economic indicators remain solid overall. New Zealand recorded an up-tick in annual GDP growth for the June quarter, export prices are still high, retail sales are holding up and monetary policy is accommodative. However, we see potential for economic growth to continue to moderate as migration falls from its peak and the housing market weakens.

What’s the outlook?

Markets have had an exceptional run in recent years, meaning valuations across most markets are high. Monetary policy tightening has started in some parts of the world, namely the US, while geopolitical risks, such as trade tensions, are showing no signs of abating. While there are still many opportunities for investors willing to be more selective, we anticipate future returns to be lower than we have seen in recent years. We continue to advocate taking a more defensive slant in portfolios overall.



For further details on these companies, please contact your Investment Adviser.



EBO is Australasia’s largest diversified pharmaceutical and veterinary products group. EBO’s largest business is Symbion Health, Australia’s largest wholesaler of pharmaceuticals. Other recognisable brands owned by EBO include Animates, Red Seal, Black Hawk and Anti-Flamme.



RMD develops, manufactures and markets medical equipment for the treatment of respiratory disorders. In particular, RMD provides continuous positive airway pressure equipment and related accessories for the treatment of obstructive sleep apnoea, an under-diagnosed health issue.



MLM’s primary business is the production and sale of aggregates (crushed stone, sand, and gravel), a critical component in producing concrete. We view MLM as the company most exposed to a recovery in infrastructure investment within the United States.