1. law, govt and politics
2. government

Comment on investment
markets in April 2015
Investments
May 2015
N
Z NZX 50
S&P/ASX
ASX 200
200 Gross
(AUD)(AUD)
MSCIMSCI
unhedged
World
(net
(unhedged)
div)
MSCIMSCI
hedged
World
(net div)
(NZD hedged)
MSCIMSCI
EM LCT
Emerging Markets (LCT)
NZ Government
NZX NZ Government
Stock GrossStock
BGABarclays
hedged (Nikko)
Global Aggregate
$NZ NZD/USD
/ $US
$NZ NZD/AUD
/ $A
1 month
3 months
-0.7
-1.7
0.8
1.3
5.7
-0.1
-0.2
1.5
-1.7
1.2
5.0
1.7
7.4
9.4
0.4
0.4
4.9
3.6
1 year
12.1
10.2
21.2
18.0
17.8
8.4
10.1
-11.4
4.1
5 years pa
10 years pa
13.5
8.5
9.6
13.5
7.1
6.1
7.4
0.8
4.2
8.4
8.5
6.5
8.3
11.5
6.2
7.8
0.4
0.3
Markets
Developed share markets
April saw developed
markets return 1.3% hedged to the NZ dollar and 1.0%
in local currency terms. Some of the stronger markets
this month included Hong Kong (up 9.1%) and Portugal
(up 6.14%).
Weaker results were seen in Finland
(down 5.9%) and Germany (down 4.4%).
Emerging markets Emerging markets had a strong
month, well outperforming developed markets with a
return of 5.7% in local currency terms. China was up
16.7% this month while Brazil was up 9.6%. Emerging
markets have struggled to keep up with developed over
recent years. The chart to the right illustrates this point
but also shows a slight catch-up this year.
1.8
MSCI DM
1.6
MSCI EM
1.4
1.2
1.0
0.8
2011
2012
2013
2014
2015
Bonds The NZ government bond yield curve steepened this month with 5 year rates falling from 3.16% to
3.13% while 10 year rates rose from 3.32% to 3.45%. The US saw rates move together with 5 years rates
rising 6 bps to 1.43% and 10 year rates rising 11 bps to 2.05%.
Economies
US The main issue playing out at the moment is when the Federal Reserve will decide to raise interest rates.
The US growth rate for the first quarter of 2015 was 0.2% which came as a disappointment to most. The Markit
PMI which indicates expansion/contraction of the manufacturing sector has also struggled with an almost flat
return this year and it now sits at 54.1, with a number above 50 indicating expansion. Employment is relatively
low at 5.5% at March 2015 but there are nevertheless fears that the US economy may be stalling.
The chart on the following page shows the value of the US dollar against the Euro and illustrates the headwinds
facing US exporters with the appreciation of the US$.
The Fed is now appears to be having second thoughts about raising rates in June of this year as was earlier
speculated. Thoughts are now that an increase in rates may not happen until 2016 in light of the recent less
favourable economic data. The delay in this has shaken the expectations of traders. However it has proven a
positive for Emerging sharemarkets with the strong rise in prices in April, as exhibited in the chart above.
Europe Greece is well off course on its $172 billion bail out programme and is at risk of losing crucial
assistance from the International Monetary Fund. While creditors in the Eurozone are adamantly opposed to
debt relief, this will be necessary if the Greek bailout is to be a success. Poul Thomsen, head of the IMF in
Europe, warned that it may hold back its portion of €7.2 billion bailout aid that Greece will require to avoid
bankrupcy.
Recent talks in Latvia were strained by the Greek finance minister, Yanis Varoufakis. The Financial Times
stated that the negotiations took “a nasty turn” and Varoufakis has now been sidelined with Deupty Foreign
Simpl House 40 Mercer Street
PO Box 11330 Wellington 6142 New Zealand
T: 64 4 499 0277
wgtn@mjw.co.nz
www.mjw.co.nz
MELVILLE JESSUP WEAVER LIMITED
57 Fort Street
PO Box 4014 Auckland 1140 New Zealand
T: 64 9 300 7155
akld@mjw.co.nz
March 2015 Investment Comment
Minister Euclid Taskalotos now leading the Greek efforts
to negotiate with creditors.
This move has been
regarded positively with the Athens stock exchange
spiking 4.4% as a result and has also been described as,
“a necessary move but not sufficient” to resolve the talks.
Page 2
1.5
USD/Euro
1.4
Recent European Commission Spring forecasts show 1.3
that Germany is likely to surpass all previous records
1.2
with a current account surplus of 7.9% of GDP. This is
a modern-era high and is the fifth consecutive year that
1.1
Germany’s surplus has been above 6% of GDP. Many
are saying that this behaviour is in fact more dangerous
1.0
for eurozone unity than anything going on in Greece.
2011
2012
2013
2014
Simon Tilford at the Centre for European Reform has
stated that, “The European Commission should stop pulling its punches: Germany should be fined.”
2015
Despite warning from the IMF, Germany’s policy-makers refuse to acknowledge that there is a problem and this
is testing the patience of many countries around the world.
Eyes are turning to the UK with its general election held today and a slew of weaker economic data emerging
over April. Growth in factory activity in April declined with the Markit/CIPS index down to 51.9% in April from
54% in March, indicating that there is expansion, but that the rate of expansion is decreasing. This data
highlights the increasing dependence of the UK on its consumers to aid the economic recovery. Lee Hopley,
chief economist at a EEF – a manufacturer’s organisation – said that “while consumer-facing sectors are still
forging ahead thanks to low inflation and a pick-up in wage growth, any sign that export growth was about to
turn around at the end of last year now looks to have been a false dawn.”
China China has suffered a hit in the form of a low GDP figure. The year-on-year figure of 7.4% growth
means that the Chinese ecomony has grown at the slowest rate since 1990 and has undershot the
government’s target for the first time since 1998. China’s official PMI number was also worrying, at 50.1 for
April, indicating that the expansion of manufacturing is virtually non-existent and that the world’s second-largest
economy is struggling to maintain momentum.
It was looking, a year ago, like the Chinese authorities were content to allow a slow-down in growth and move
away but now there has been a 180-degree turn. Fred Neumann at HSBC suggests that this is due to a
greater than expected slow-down in the labour market and China’s failure to stabilise the property market.
A Financial Times article looks at China’s shrinking labour force and has suggested that China’s “migrant
miracle” that powered its industrial rise is now mostly exhausted. From 2005 to 2010, the growth rate of
migrant workers was 4%, last year it was only 1.3%.
Japan The country has narrowly avoided deflation with a figure of 0.2% posted in March. The Bank of Japan
has now admitted that it will not achieve its 2% inflation target to be met within two years of their stimulus in
April 2013, now estimating that this goal may be met by the first half of the 2016 fiscal year.
Australia Slower wage growth and a crash in commodity prices are taking its toll with large budget blowouts
predicted for both the 2014-15 and 2015-16 financial years. Despite this, the government has said it remains
committed to achieving a surplus with Tony Abbott stating that the government had a credible path back to a
surplus but not putting a date on when this would be achieved.
New Zealand New Zealand is also at risk in the event of a serious slow-down in China with the NZ dollar
falling sharply in response to China’s GDP announcement. Global dairy prices also darken the picture for NZ
with a fall of 3.6% in the GlobalDairyTrade index for April and a fall of 20.7% since the start of the year.
Outlook
Our global colleagues are continuing to hold a cautious view on the strength of the global economy. A specific
concern is the currently disinflationary environment. They hold a moderately underweight position on a 3 to 5
year time period for most equity markets with the exception of Japan and Euroland. In regard to bonds they are
moderately underweight for credit but neutral for Sovereign bonds. The underweights are balanced by
overweight property and cash positions.
Looking at New Zealand while the economy has done extremely well there is possibly a growing feeling that
there are stresses out there and that the economy is perhaps weaker than we might like to think. To illustrate
the NZ dollar has stalled in its efforts to achieve parity with the A dollar.
Mark Weaver
Towers Watson Alliance Partner