Monthly Commentary January 2024

Global equity markets performed strongly over the first month of 2024, with new all-time highs for the S&P500 Index in the US, and the highest levels reached for 20 and 40 years for Europe and Japan respectively. Early in the new year bond yields moved higher as markets priced out interest rate cuts in the first quarter. Equity markets also sold off during this period, partially due to fears of higher interest rates and their impact on the broader economy, but also due to ongoing geopolitical instability in the Middle East. Shipping costs have moved sharply higher due to the disruptions in the Red Sea. This will eventually flow through to higher overall supply chain costs, with the risk that this keeps inflation above central bankers target ranges. Yields finished the month slightly higher having overshot late in 2023, partially due to expectations that key central banks around the world would commence easing cycles soon. While most central bank guidance suggested this will happen in 2024, its likely it will not begin until the middle of the year. The Bloomberg Global Agg Index (NZD Hedged) was down -0.2% for January, giving back some of the strong gains made over Q4 2023. In equities, the MSCI ACWI Index (NZD Hedged) was up 1.3% for January. The Kiwi was down over 3.2% versus the USD, so returns were boosted for unhedged NZ investors, up 3.5% for the month.

Information Technology maintained its sector leadership status, with Communication Services as the second strongest. These sectors are dominated by the US mega-cap names that have led the market higher since the 2022 sell-off. Japan delivered the strongest returns for January (+8.4%), while China’s weak economic recovery meant their equity market was an underperformer, down over 3%. The NZ and Australian markets both posted positive returns to start the year, but at 0.9% and 1.2% respectively, they lagged the broader global market.

On the economic front, the US economy has continued to hold up well with strong 4th quarter GDP print, and ongoing strength in the labour market. This has fed through to rising US consumer sentiment, as reflected in the University of Michigan survey at its highest level since mid-2021.