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Market commentary (to the end of September as supplied by Mercer)

September proved to be a difficult month for Global Equity markets as a slowing global economy, worsening supply chain and the potential Evergrande bankruptcy in China dented investor sentiment (Evergrande is not one of the stocks in our funds). The US slightly underperformed Global Equity markets. While Emerging Market equities (such as those from China, India and Brazil) performed in-line with global equities.

Credit spreads (the difference in yield between a U.S. Treasury bond and another debt security of the same maturity but different credit quality) widened as traders and investors reduced their exposure to risk and focused on protecting their capital. The US dollar strengthened and energy prices soared, while performance for non-energy commodities were more mixed.

The MSCI All Country World Index returned -2.2% for the month (in unhedged NZD). The index declined due to a cooling global economy suffering from on-going supply constraints, and tightening monetary policy in Europe, as well as multiple economic challenges in China, and political uncertainty in Germany and Japan. Additionally, major central banks announced slowdowns in their asset purchases and, in some cases, rate increases.

The New Zealand market ended the month up 0.6%. Performance was buoyed by economic data showing resilience in the NZ economy, despite the impacts of the delta-lockdown. However, upside was limited by expectations of an OCR increase at the October Reserve Bank of New Zealand meeting (which since increased the rate to 0.5).

Significant developments for September included:

  • In the US, the Federal Reserve (Fed) signalled its intention to slow the pace of its asset purchases, which are set to come to an end by around the middle of next year. The Fed’s projections show US interest rates increasing to 1.75% by the end of 2024. The pace of rate increases was faster than market expectations, resulting in a rise in Treasury yields and reversing declines seen earlier in the quarter.
  • Supply chain woes worsened with container ship queues at US west coast terminals lengthening. Shipping rates have reached new highs and a shortage of truck drivers needed to supply gas stations led to a 1970s-style run on fuel in the UK. These supply constraints have kept inflation high across the developed world.
  • Investors contended with fears around the potential default of Evergrande, a large Chinese property developer. The company, which carries significant debt and financing obligations, announced its inability to meet upcoming interest and principal payments, sparking fears of a collapse in the Chinese property market (amounting to a large share of China’s GDP) and potential flow on effects.

 

Whai Rawa Returns

All Whai Rawa Funds fell over September, performing in-line with, or slightly below their respective benchmarks. The Tōtara-Conservative Fund led the wider Whai Rawa Funds, returning -0.9%. Nevertheless, all Whai Rawa Funds have provided positive absolute and relative returns over longer timeframes. Over 12 months gross returns for the Rātā-Growth Fund were 17.4%, the Matai-Balanced Fund 12.4% and Totara-Conservative Fund 3.6%.

 

September 2021

**Financial year begins 1 April.

Notes: Past performance is not a reliable indicator of future performance.

Where applicable returns include, and assume the full utilisation of, tax credits.

The returns for FY2021 need to be considered in light of the market low caused by COVID-19 that negatively impacted market values at the start of this return period, with the returns shown in FY2021 incorporating the recovery from those market lows.