Market update: a round-up of the financial year

For the year ending 31 March 2020. Information correct at the time of writing (28 May 2020).

Right now, you’re probably focused on the recent falls in share markets related to COVID-19. However, it’s important to view the year as a whole. Financial markets continued their steady run higher through 2019, despite some headwinds. As we moved into January 2020, financial markets initially took news of the COVID-19 outbreak in China in their stride, focusing instead on signs that some of the geopolitical risks that had dominated 2019 had started to fade.

The US and China signed a ‘phase one’ deal to try to break their trade deadlock. In the UK, a successful election for the Conservative Party enabled the Government to push ahead and finally get Brexit across the line. This saw many global share markets go on to reach record highs, including the major US share markets indices and our own local share market.

Financial markets react in fear

However, in February, the rapid spread of COVID-19 began to dominate headlines. With whole countries in lockdown, the global economy was essentially ‘closed for business’, and it became clear that the economic repercussions were huge and would be felt far and wide.

Over a period of a few weeks, global share markets moved sharply lower. Some experienced their largest one-day falls since the market crash of 1987, and market volatility rose to levels not seen since the Global Financial Crisis. This quickly erased the strong gains investors had enjoyed from share markets up to this point. That said, Government bond markets performed well, as they tend to offer a ‘safe haven’ for investors when share markets turn volatile.

Massive policy response helped to shore up markets

Interest rates around the world were slashed, and a number of central banks announced quantitative easing programmes to allow financial markets to continue to function through the crisis. Governments also played their part. Not only were they instrumental in trying to contain the spread of COVID-19, but they acted to limit the economic fallout from it.

The US Senate passed a US$2 trillion disaster relief package, while our Government committed over NZ$16 billion to support businesses and workers’ salaries. These were convincing policy responses, which allowed share markets to post a modest recovery during the final few weeks of the financial year. Over the year, global share markets finished 4.7%* lower, while bond markets finished 6.0%** higher.

How did our funds perform over the course of the year?

Despite the large falls in global share markets on the back of COVID-19 late in the year, all of our funds in both the BNZ KiwiSaver Scheme and YouWealth finished the year higher (or flat).

Our more conservative funds, which have a higher weighting to bond and cash investments, performed the best over the year. Our more growth-oriented funds also delivered gains (with the exception of the YouWealth Growth Fund, which finished flat), but were unable to match the returns of our more conservative funds because of their higher weighting to weaker-performing share investments. That said, the BNZ KiwiSaver Growth Fund was one of only two funds within its KiwiSaver peer group to deliver a positive return – albeit modest – over the year^.

Read more about our approach to investing and check out the performance of our BNZ KiwiSaver Scheme and YouWealth funds.

Where to from here?

Since the end of March, share markets have made up a lot of their lost ground, as investors have been buoyed by signs that the virus is being contained. Just like here in New Zealand, the rate of new infections has slowed in some of the worst-affected areas, and many countries are similarly coming out of lockdown.

Over the coming weeks and months, it’ll become clear just how effective the various Government lockdown measures have been. Of course, we should remember that we’re dealing with a global health crisis the likes of which has not been seen for 100 years. What this means is that uncertainty is likely to dominate until the virus has been effectively contained, and so you should expect continued volatility in financial markets. However, we know that markets generally recover from short-term downturns and that the best thing to do is stay the course. And, if you’re not comfortable then take a moment to check you’re in the right fund for your current situation.

* 12 months to 31 March 2020. MSCI All Country World Index (50% hedged to NZD)

** 12 months to 31 March 2020. Bloomberg Barclays Global Aggregate Index (100% hedged to NZD)

^ March Quarter 2020 Morningstar KiwiSaver Survey. Performance for the year to 31 March 2020.

BNZ Investment Services Limited, a wholly owned subsidiary of Bank of New Zealand, is the issuer and manager of YouWealth and the BNZ KiwiSaver Scheme. Product disclosure statements for both products are available at bnz.co.nz or at any BNZ branch.

Investments in YouWealth and BNZ KiwiSaver Scheme are not bank deposits or other liabilities of Bank of New Zealand (BNZ) or any other member of the National Australia Bank Limited group. They are subject to investment risk, possible delays in repayment, possible loss of income and possible loss of principal invested. No person (including the New Zealand Government) guarantees (either fully or in part) the performance or returns of YouWealth or BNZ KiwiSaver Scheme or the repayment of capital. National Australia Bank Limited, the ultimate owner of BNZ, is not a registered bank in New Zealand but a licensed bank in Australia and is subject to the supervision of the Australian Prudential Regulation Authority.

The information in this article is provided for general purposes only, and is a summary based on selective information which may not be complete for your purpose.  To the extent that any information or recommendations in this article constitute financial advice, they do not take into account your financial situation or goals and is not intended as personalised financial advice. While BNZ has made every effort to ensure that the information provided is accurate, you should not rely on this information to make any financial decision without first having sought advice specific to your circumstances from an authorised financial adviser. Neither BNZ nor any person involved in this article accepts any liability for any loss or damage whatsoever which may directly or indirectly result from this article.