A return to lockdown

As you know, following the spread of the more contagious Delta variant of COVID-19, the Government placed New Zealand back into a nationwide lockdown. We found ourselves back at Alert Level 4, some 16 months after we were last here. It was our first community case since February and comes when New Zealand looked to be doing so well at keeping it at bay.

Of course, you may remember what happened to financial markets when COVID-19 first came on the scene early in 2020. Back then the reality of world-wide lockdowns spooked investors, leading to sharp falls in global share markets. So, with New Zealand back at higher alert levels, you may again be worried about what this means for your investments.

The good news is that so far, New Zealand’s financial markets have been resilient. Since the lockdown began at midnight on Tuesday 17 August, local shares are up around 3%, bond markets have moved sideways and the currency is down a bit.

So why has it been different this time? You may remember that following the falls in March 2020, markets bounced back quickly. This was because governments and central banks around the world did all they could to support their economies. Interest rates were slashed and financial support packages were announced to help businesses and households get through. This helped markets regain confidence and, within a few months, most share markets had made back their losses.

As we headed into this lockdown, from an economic viewpoint at least, New Zealand is in good shape. Keeping COVID-19 out of the community has meant we’ve enjoyed our freedoms. Consumer and business confidence has recovered, economic growth is exceptionally strong and unemployment has fallen. Add to that low interest rates and the Government’s willingness to offer ongoing financial assistance, and the result is that local financial markets have taken this lockdown in their stride. Markets appear to be looking through the current restrictions and to the longer term prospects for the economy and New Zealand businesses.

It also helps that New Zealand’s markets tend to take their direction from what’s happening overseas. There, high vaccination rates have allowed some economies, such as the US and UK, to come out of their lockdowns. This has brought with it an improved economic outlook and a number of key share markets are currently at all-time highs.

However, while we are in higher alert levels and new daily cases come to light, there remains a possibility for some wobbles in New Zealand financial markets – especially if it starts to look as though we can’t contain the outbreak. With this in mind, we want to remind you about the best course of action whenever markets do get the jitters.

The age-old adage of ‘don’t put all your eggs in one basket’ rings loud and clear. In the investment world we call this diversification, and it helps protect your investments from the ups and downs in markets that we’ve learnt to expect from time to time.

At ANZ Investments, the majority of our KiwiSaver and investment funds are diversified, meaning they hold a variety of different types of investments such as shares, bonds, cash, property and infrastructure. If there are falls in one market, these can be offset by gains in another. We also invest a large portion of our funds in overseas markets. Should local markets fall in response to a drawn-out lockdown, we could expect overseas markets to provide a cushioning effect.

The other important thing is not to panic. When uncertainty hits and markets fall, it can be unsettling to see your account balance go down. However, it’s important to remember that most investors are in it for the long-term, and that over time markets should recover.

Market ups and downs are part and parcel of investing, and so it’s important not to change your approach when volatility hits. Last year, in the midst of the COVID-19 market sell-off, we saw a lot of investors switch out of growth-oriented funds and into more conservative ones. However, many missed out on the sharp rebound in markets that followed.

Earlier this year, research by the Financial Markets Authority (the regulator of all KiwiSaver and managed investment schemes) highlighted the extent of this issue. It showed that only 9.1% of KiwiSaver members who switched to a lower risk fund during COVID-19 had switched back to a higher risk fund by August 2020 – meaning around 90% missed out on the market’s subsequent rebound, and may still be in a low-risk fund that does not align with their savings goals¹.

The moral of the story is stay the course. It’s hard to predict when markets change direction and always trying to pick the best time to change funds comes with risks. We recommend you check you’re in the right fund for you, and be prepared to ride out any bumps along the way.

¹ Source: Lockdown: A review of KiwiSaver member behaviour in response to COVID-19, a report prepared by PwC for the Financial Markets Authority. Find a copy of the report here.

Markets are unpredictable, and are driven by both emotion as well as financial and economic factors. At ANZ Investments, we believe having a disciplined investment approach is the best way to manage the inevitable ups and downs in markets. Our emphasis on ‘active management’ means our team is always looking out for your investments – we don’t just take a set and forget approach. Not only do we position our funds to withstand market downturns, but we can move quickly to make the most of any new opportunities that present themselves.

We know lockdowns create uncertainty, but our view is that there are positives too. Over the last two years, which includes the impact of the global lockdowns, our diversified KiwiSaver and investment funds have delivered strong returns for members and, since the start of the August lockdown, they’ve moved higher still. While New Zealand’s economic growth may be impacted by the higher alert levels, our economy has been doing well. What’s more, we’re in the middle of reporting season and businesses have been reporting strong numbers, which has sent the local share market to six-month highs.

But to be prepared we recommend you check you’re invested in the right fund for your life stage and attitude to risk. You can do this by using our online risk profile tool. If you want to make a change, for KiwiSaver, you can do so online via ANZ Internet Banking or by completing our online change form. For investment funds, you can do this by completing and returning our transaction form at the back of the ANZ Investment Funds product disclosure statement (PDF 1.1MB). 

Of course, if you want advice designed around your individual situation, please contact your financial adviser. If you don’t have one, we have a team of qualified ANZ Investment Advisers available to provide expert advice. To talk to one of our team at ANZ, call us on 0800 736 034. It’s easy and it’s free.