Monthly Commentary June 2024

Global equity markets performed strongly for a second straight month in June, to close what began as a volatile quarter on a positive note. This capped off a third straight strong quarter for global equity markets which rallied consistently from the sell-off in October 2023, with only a brief and shallow pull-back in April. Bond markets also posted a second straight month of gains after a difficult start to the year where interest rates moved higher as expectations for major central banks to start cutting rates were pushed back to later in 2024. In June market focus returned to central bank easing, and four major central banks have started to cut rates (European Central Bank, Riksbank, Swiss National Bank and Bank of Canada). The Bloomberg Global Agg Index (NZD Hedged) returned 0.9% for June, and 0.1% for the second quarter.  By contrast the MSCI ACWI Index (NZD Hedged) was up 2.6% for June and 3.5% for the quarter. The Kiwi was higher over the quarter versus most of the majors, so returns were muted for unhedged investors, up 3.1% for the month and only 1.0% for the quarter. Closer to home NZ equities were weak in June (-1.2%) and over the second quarter (-3.1%).

The main economic development data was an improvement in the inflation data indicating that disinflation is resuming its course in the US, UK, and Europe. Japan remains an exception, potentially facing a new inflationary wave due to currency depreciation. Geopolitics also remained to the fore last quarter. France saw the unexpected announcement of a snap legislative election in France. The uncertainty this caused led to a sharp widening in the spread between 10-year French and German government bond yields, with spreads moving out to levels not seen since the 2011 European Debt crisis.

Information technology (+11.2%) continued its leadership role over the quarter, with Communications Services (7.7%) not far behind. The second quarter was yet another example of very narrow breadth in the equity market advance, where a large proportion of the gains were driven by these two sectors alone. Utilities was the only other sector to advance. As well as US equity markets, UK (+2.7%) and Hong Kong (+7.1%) performed well over the second quarter. Emerging markets also had one of its best quarters for a while (+6.2%) despite weakness in Chinese stocks.