April market commentary

In summary…

•    Sharemarkets had a tough time in April, particularly in the US.
•    Other markets around the world held up better, including NZ and Australia.
•    Investments into bonds suffered one of their worst months since the Global Financial Crisis.
•    From a New Zealand investor perspective, the NZ dollar fell over the month, improving returns in unhedged or partially hedged investments.

What happened in markets during April?

Investors weighed up mixed news over the month, but ultimately most markets finished lower. Global sharemarkets fell as concerns of a global economic slowdown following rising interest rate expectations and Covid-19 lockdowns in China outweighed some strong US company earnings.

There was no reprieve for bonds either, with central banks seemingly in a rush to lift interest rates to fight fast-growing inflation outcomes. The US Federal Reserve continues to talk tough and, with inflation firmly in their crosshairs, markets now see the central bank sending interest rates above 3% by the end of the year.  This saw fixed income markets suffer one of their worst months since the Global Financial Crisis in the late 2000’s.

The speed with which the market’s expectations of interest rate increases have moved means that the sharemarket has again been forced to play catchup. Shares in the US gave up most of March’s gains and retested January’s lows, when fears of rising interest rates first took hold. Meanwhile in Europe, investors quickly looked beyond President Macron’s re-election, with the shares in the region also ending the month lower.

Rising interest rate expectations underpinned the US dollar, which this month rose to its highest level in two years against a basket of currencies. On the back of this, the NZ dollar weakened over the month, improving returns for unhedged or partially hedged offshore investments.

Lastly, Australasian shares held up ok over the month. Both benefitting relatively from a low exposure to technology companies which came under selling pressure on the back of higher interest rate expectations.

Outlook

There is little change in our outlook from our previous commentary.  The market outlook remains clouded; positive company earnings combined with geopolitical turmoil and the negatives of rising interest rates provide investors an abundance of information to grapple with. It’s during times of elevated uncertainty and volatility that investors need to look out further and focus on long-term trends and market cycles (as we’ve said in the past, focus on the hill, not the yoyo).

So, when markets and world news become rough and choppy, as investors we should take a cue from those experienced in sailing rough waters – keep your eyes focused on the horizon to give yourself a point of reference.  Our experiences of the past have taught us that this is the best approach as the cycles do turn.