February 2022
Following the market sell off in January, the trend remained downwards during February as well. The New Zealand and Australian sharemarkets moved slightly against that trend with positive returns, whilst developed global markets were generally down between 0-3% over the month.
For NZ investors, currency hedging added value to protect against the rising NZ dollar which offset the opposite movement during January. Generally the same factors that were weighing on markets in January (tightening money supply, higher interest rates, increasing inflation fears) continued through February, but with the added uncertainty created by Russia’s military attacks on Ukraine. Accordingly, we saw energy stocks generally perform well with increases in energy prices improving their earnings (notwithstanding that some energy firms took significant losses on their Russian assets as they shunned Russian operations), and technology stocks generally struggled due to valuation concerns over rising interest rates even where such companies have strong cashflows and earnings outlooks.
One aspect of change since the end of January is that the geopolitical conflict could bring forward the anticipated global slowdown and also make it worse which would weaken the case for interest rates to rise as far or as fast as previously expected. Should this narrative start to be heard from central banks, then markets may re-assess their expectation on when, and at what level, interest rates will peak in this cycle.
Data as at 28 Feb 2022 Any references to particular securities are for illustrative purposes only and are as at the date of publication of this material. This is not a recommendation in relation to any named securities and no warranty or guarantee is provided. Nikko Asset Management New Zealand Limited (Company No. 606057, FSP22562) is the licensed Investment Manager of Nikko AM NZ Investment Scheme, Nikko AM NZ Wholesale Investment Scheme and the Nikko AM KiwiSaver Scheme. This material has been prepared without taking into account a potential investor’s objectives, financial situation or needs and is not intended to constitute personal financial advice, and must not be relied on as such. Recipients of this material, who are not wholesale investors, or the named client, or their duly appointed agent, should consult a Financial Advice Provider (FAP) and the relevant Product Disclosure Statement or Fund Fact Sheet (available on our website www.nikkoam.co.nz). If you are a Financial Advice Provider (FAP) and would like to find out more, please contact our distributions team.