Monthly Commentary | January 23

The much hoped for Santa Claus rally failed to materialise over December with bond, equity and property sectors all falling over the month. Large global technology companies lead stocks lower closing out the worst year in more than a decade for global equities and bonds. 2022 was a year when inflation reasserted itself wiping significant value from financial assets as central banks raced to slow rising consumer prices by hiking interest rates around the world. 

 It is difficult to recall a time when both bond and equity prices were down simultaneously for such a prolonged period, the good news is that the end is in sight of central bank interest rate hikes with attention turning to how long central banks will keep interest rates at very restrictive settings.

Looking into 2023 a few bumps in the road are to be expected as weaker economic trends are likely as the central banks from the US Federal Reserve to our own Reserve Bank battle inflation which may well result in a mild recessionary environment, but this could set up equities for a stronger period of returns as interest rates peak and begin to retrace.

Falling rates will also benefit bond market returns as an element of capital gain can be expected as inflation and consumer demand softens. The New Zealand Dollar continued to climb against the US Dollar over the month resulting in a benefit for offshore assets which were hedged to the NZD.