Published on 11/09/2023
After a positive few months in the markets both in New Zealand and around the world, August saw some less-than-ideal results - particularly here at home. The major impacts on our domestic market performance largely stemmed from China, one of NZ’s major trading partners and thus a significant contributor to our economy.
Official releases from China revealed that the Chinese economy has slowed down more than expected, with a significant amount of stress on their property market in particular. Given NZ’s reliance on China for our foreign exports, these weaknesses have had some major impacts on the NZ dollar. The Kiwi continued to fall during August and finished below 60 cents to the US dollar - the lowest it’s been since November 2022.
The issues in China, coupled with some mixed results from several major Kiwi businesses, led to the steepest monthly decline in the New Zealand market this year. Global dairy prices falling throughout the month also didn’t help, given dairy is one of our biggest exports. The NZX 50 index finished over 4% down in August, compared to a 1.5% decline in Australia’s ASX 200 index.
Even the US S&P 500, which has seen market gains of almost 18% YTD, saw a slight decline in August of 1.6% (in local currency). Interestingly, if you looked at the S&P 500 returns in NZD you would see positive returns of 2.9%, due to our foreign currency declines discussed above.
Looking at the fixed income side, bonds were more stable than shares in August - but still gave a slightly negative return of around -0.5%. Persistently higher interest rates continue to affect the bond market, and until these start to come down, bonds will be slow to recover.
The Reserve Bank has continued to hold the Official Cash Rate (OCR) steady in NZ in August, although lower interest rates from the big banks seem to be some way off - and several even increased their mortgage rates during the month. Inflation remains a major concern, despite our economy showing some signs of slowing.
Despite the weaker performance seen in August, overall the markets remain positive from a YTD 2023 perspective. And on that note, it’s important to remember that investing is a long-term game to build wealth. Although on a surface level it can seem scary, short-term volatility is to be expected (especially in higher growth assets like shares), and not something we should worry too much about.
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