A year in review

Market update for the year ending 31 March 2019.

The twelve-month period up until 31 March 2019 was an interesting time for investment markets. Overall it was a strong period, but there was a general increase in ups and downs – also known as market volatility, particularly in comparison to the year before. Here’s a look back at the year and what we could expect in the year ahead.

Investors flocking to safe havens

Income generating (generally lower risk) assets like bonds performed well during the year. New Zealand bonds finished in positive territory with the Government Stock Index returning 6.1%. This has been helped by The Reserve Bank who’ve kept the Official Cash Rate on hold. This has seen global investors seeking safety and yield in New Zealand bonds. It’s also seen a supply shortage, which has ultimately increased demand and therefore, the value of these types of income generating assets.

Looking beyond New Zealand, it can be said that global bonds didn’t perform as well as New Zealand bonds. However, they still managed to increase in value as global investors flocked to the safety of bonds when equity markets became more volatile towards the second half of the year.

Geopolitical events drag on

Despite the increased volatility, overall, growth orientated (generally higher risk) assets like equities (shares in companies), also performed well over the year. New Zealand equities returned 19.6% and global equities returned 7.1%.

After a solid run for most of 2018, the December quarter was a particularly turbulent one with a global equity market sell-off seeing share values fall. October was particularly tricky, where we saw a 6.9% decrease. This was brought on by political dramas like Brexit and the trade war between China and US.

As we headed into 2019, the US stepped back from further interest hikes and optimism took hold and most investment markets rallied to jump start the new year. However, as it does, volatility returned in March. Again, this was largely because of the ongoing lack of a Brexit decision from UK law makers, and the continuing US-China tensions. In contrast, back home, New Zealand equities had an incredibly strong start with the NZX50 returning 12.6% for the first three months of 2019.

And so it continues…

While markets continue to bounce back from the December sell-off, global growth forecasts have been reduced. Therefore, the recent volatility we’ve seen recently is here to stay, but this is not unusual for investment markets.

While this can be unsettling for some investors, it’s important to remember that short-term market ups and downs are not new and are a normal part of investing. And as a long-term investor, you should be able to ride out these periods of volatility as history has shown us. If you feel you’d like to have a chat to an adviser, please get in touch, we’ll be happy to help.

Helpful links

Video: Understanding investment risk and return
Article: Tips on how to deal with volatility in your investments

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