In our latest Quarterly Market Update, we delve into the financial markets and economic trends that shaped Q2 2024. From the continued surge in AI-driven equities to the underwhelming performance of the New Zealand stock market, this update provides valuable insights for investors navigating the current economic landscape.
The AI revolution continued to dominate financial markets during the June quarter, with large-cap tech stocks leading the charge. This momentum resulted in a notable 3.1% increase in international equities, reflecting the significant role technology and artificial intelligence play in driving global economic performance.
Emerging markets also experienced a positive quarter, mirroring the 3.1% growth observed in international equities. This steady performance underscores the resilience of these markets amidst global economic uncertainties.
A Closer Look at Other Asset Classes
While the AI boom fuelled growth in international equities, other asset classes experienced mixed results. Markets outside the tech sector remained largely flat or even regressive. The New Zealand stock market, represented by the NZX 50, struggled to gain momentum. Over the past three years, the NZX 50 has shown virtually no gains, and over the last five years, it has increased by only 13%.
Comparing Performance: NZX 50 vs. S&P 500
In stark contrast, the S&P 500 in the United States has surged by 80% over the same five-year period, outperforming the NZX 50 by more than four times. This significant difference in performance raises important questions about why New Zealand is underperforming relative to its international counterparts.
Factors Behind New Zealand’s Underperformance
Several factors contribute to New Zealand’s lagging performance. Firstly, the country’s GDP per capita is currently negative, while the U.S. GDP continues to grow at a rate of 3%. Additionally, high-interest rates are putting pressure on New Zealand businesses, further hindering economic growth.
New Zealand was once regarded as a “rock star” economy, but it now feels more like a “has-been” band playing concerts well past its prime. This sentiment is reflected in the fact that promising companies like Xero and Rocket Lab have opted to list in Australia or the United States rather than in New Zealand.
Interest rate policies worldwide have significantly impacted bond markets. In some regions, delayed interest rate cuts have influenced bond yields. Despite this, quality bond portfolios continue to offer strong yields, with many portfolios achieving yields in the 8% range.
Looking ahead, there is an expectation that interest rates in New Zealand will begin to fall. An OCR (Official Cash Rate) cut seems likely, which could inject a sense of confidence into the market and potentially boost economic activity.
Client Portfolio Performance
Despite the mixed results in various markets, our client portfolios have shown resilience over the past quarter and year. Below are the up-to-date returns for our client portfolios:
•Defensive: 0.5% (3 months) | 7.2% (12 months
•Moderate: 0.6% (3 months) | 8% (12 months)
•Balanced: 0.5% (3 months) | 8.9% (12 months)
•Growth: 0.5% (3 months) | 9.8% (12 months)
•High Growth: 0.6% (3 months) | 10.9% (12 months)
•Pure Growth: 0.7% (3 months) | 11.7% (12 months)
These figures reflect the strategic allocation and careful management of our portfolios, ensuring that our clients continue to achieve strong returns even in uncertain market conditions.
The second quarter of 2024 was marked by a continued AI-driven surge in global equities, contrasting with the underperformance of the New Zealand stock market. While other asset classes remained flat, the anticipation of falling interest rates in New Zealand offers a glimmer of hope for future economic confidence. Our client portfolios have demonstrated solid performance, underscoring the importance of a diversified investment strategy in navigating the complexities of today’s financial markets.
1.AI-driven growth in international equities continues to shape the global market, while other sectors remain stagnant.
2.New Zealand’s underperformance is linked to negative GDP per capita and high-interest rates, with promising companies opting to list abroad.
3.Our diversified client portfolios have delivered strong returns, highlighting the value of strategic asset management in volatile markets.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
