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Market review

A summary of how financial markets performed in the third quarter of 2020:

Global markets

International equity markets staged an impressive turnaround in the second quarter of 2020 as sentiment around the economic impact of COVID-19 improved as countries slowly began reopening their economies. The rally saw most indices we track record double-digit gains. Against this backdrop, the MSCI All Country World Index rose 17.7%, in local currency terms.

The COVID-19 situation improved

The start of the quarter saw a sharp rise in COVID-19 cases in early hot spots including Italy, Spain and the Northeast of the United States. However, as ‘shelter in place’ and ‘lockdown’ measures were implemented, cases in these areas slowed, boosting optimism.

However, towards the end of the quarter, there were signs that cases in the South and Southwest of the US had begun to pick up, most notably in Florida, Texas and Arizona.

Economies look to be heading into recession

During the second quarter, economic data showed that major global economies recorded negative growth in the first quarter of 2020, more than likely putting them into recession. In the US, GDP for the first quarter fell 5.0%, the largest quarterly decline since the fourth quarter of 2008. Meanwhile, eurozone growth contracted by 3.6% over the first quarter, its biggest decline since records began in 1995.

Adding to growth concerns came when the International Monetary Fund downgraded its global growth forecast to -4.9% for 2020 saying the recovery appears to be “more gradual” than it had previously forecasted.

New Zealand market

New Zealand markets had a strong recovery in the second quarter with the benchmark NZX 50 rising back above 10,000. The overall sentiment was helped by New Zealand’s COVID-19 response that saw the country move to ‘Alert level 1’ after a number of consecutive days with no cases.

Despite the recovery in markets, economic data remained on the softer side. Of note, GDP figures showed the economy contracted by 1.6% in the first quarter, below expectations. This means the New Zealand economy is likely in a recession. Elsewhere, retail sales data for the first quarter fell 0.7%, again below expectations. The decline was particularly bad in the automobile, restaurant and hotel sectors.

The RBNZ increases its quantitative easing programme

On 13 May, the Reserve Bank of New Zealand said it would nearly double its quantitative easing programme, announcing it would buy up to another $27 billion in bonds over the next 12 months. The RBNZ added that it expects the Official Cash Rate would remain at 0.25% until early 2021.

New Zealand dollar recovers

The New Zealand dollar had a strong quarter against a number of its major trading partners. Against the US dollar, the kiwi rose 8.4% and against the euro, the kiwi gained 6.4%. However, against the Australian dollar, the currency fell nearly 4%. 

Source: ANZ New Zealand Investments Limited (ANZ Investments), Bloomberg, Factset.

Market return indices: Global shares (MSCI All Country World Index); US shares (S&P 500 Index); Technology shares (NASDAQ 100 Index); UK shares (FTSE 100 Index); Chinese Shares (Shanghai Composite Index); New Zealand shares (NZX 50 Index); Global Bonds (JPM World Govt Bond Index); New Zealand Bonds (NZX New Zealand Government Stock Index); International listed property (FTSE EPRA Nareit Custom Developed Rental (ex-AU & NZ) Index); New Zealand listed property (NZX Property Index); Australian listed property (ASX 200 REIT Index). Returns are for the quarter, and are based on the stated market indices, shown in local currency terms and are unhedged, unless otherwise stated.

This document has been provided for information purposes only. While ANZ Investments have taken care to ensure that this information is from reliable sources, they cannot warrant its accuracy, completeness or suitability for your intended use. The content is intended to be of a general nature and does not take into account an investor’s, or potential investor’s, financial situation, investment objectives, or risk tolerance. Past performance does not indicate future performance. The actual performance realised by any given investor will depend on many things, is not guaranteed, and may be negative as well as positive.

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