Monthly Commentary | November 22

Despite the continuing stream of negative news about inflation, business sentiment, higher costs of living, and geopolitical tensions, investors enjoyed a strong month of positive investment performance across most major sectors during the month of October. This is unlikely to be the beginning of an asset price recovery, but rather the playing out of the current patterns of volatility whereby we’ll observe bouts of weakness followed by a bit of a bounce back.

Equity markets globally rose around 6-7% in local currency terms, with particular strength being seen in the US and Europe, and the outlier being China which fell nearly 8%. Bond markets were generally flat with variations arising from the different compositions of credit and duration in the various indices. Assets that were currency hedged back to the NZ dollar provided some protection against the rise in the NZ dollar, but this was relatively modest in the context of the significant falls in the NZ dollar in recent months (as noted in previous commentaries).

Listed property markets continue to perform poorly for a variety of reasons and are generally down by approximately 20% over the past 12 months, and this stands in marked contrast to unlisted property funds which in some cases are showing positive returns. We’ve seen this phenomenon before where listed and privately held assets diverge in valuations and note that such disparities even out over time and so either we’ll see listed property valuations improve, or (more likely) directly held property portfolios will have to lower their valuations. Long-term investors should avoid the temptation of getting distracted by these short-term pricing variations.