Market review: Glimmers of light appear in markets
Guardian Trust Funds Management managing director Anthony Quirk reviews the markets and May and looks at where they might be heading.
Wednesday, June 5th 2002, 10:01PM
by Anthony Quirk
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This market summary is provided by Guardian Trust Funds Management. To see how the numbers stacked up for various markets around the world in the past month and over the year, visit our Monthly Market Reveiw here |
May was a month filled with good and bad news for investors.
The best of the good news was that the United States market experienced a mid-month rally fuelled by some better than expected corporate results.
The bad news was this had well and truly petered out by month end, being eventually outweighed by the negative tone and outlook for other corporates, particularly in the technology sector. The result was a roller coaster ride for the technology-heavy NASDAQ index, with it ending the month having returned –4.4%.
The moral of all this is that corporate earnings results are the key for any significant lift in the US (and therefore world) markets. One positive to come out of this was the clear signal that the market has significant potential upside if a sustained corporate earnings rally occurs – after five quarters of negative corporate earnings declines.
Forward-looking forecasts from analysts suggest this will occur some time in the next 6-12 months. After all, the US is due for a pick-up after experiencing its worst stretch of corporate earnings declines since the 1970s.
Looking elsewhere, Japan has continued to defy gravity and it remains one of the better performing sharemarkets for the calendar year to date, with a return of 11.6% for the five months ending May 31. There is a growing sense from analysts that the worst may be over for Japanese banks, although any recovery will be slow and painful.
On the other hand, European shares fell substantially. In particular, Germany fell 4.4% and France fell 4.2%. The European Central Bank decided not to increase its official rate from 3.25%, but noted that there is a good chance of inflation rearing its ugly head in the near future. Confidence in France and Germany appears to be improving.
On the domestic side, how times have changed. Budget time in New Zealand used to be analysed to death by the financial markets with this writer being one who often stayed up to the early morning hours to look at possible market insights. But this month’s effort was a complete yawn from the markets’ viewpoint, with the Budget being boring in its predictability. Of course, this is exactly what the Labour Government wanted, with numerous pre-Budget announcements effectively leaving little for the day itself.
In fact, there was actually some good news for the markets with a larger than expected budget surplus, which reinforced the feeling that Labour is bent on ensuring that they are comfortable winners in any forthcoming election.
In contrast with the overseas sharemarkets mentioned above, the New Zealand sharemarket had a very good month. Helped (again) by a strong rise from Air New Zealand, the NZSE40 index appreciated by 5.2 % over the month of May. In fact, Air New Zealand’s share price has appreciated by 97% over the past two months.
Domestic consumer confidence is at its highest level for over a year, driven by strong employment growth.
The global bond markets had a positive month, helped by the flight to quality away from the global sharemarket’s negative returns, as well as the tensions in the Middle East and between India and Pakistan.
This also impacted on the New Zealand bond market, with the CSFB NZGS index returning 0.45% for the month. However, the Official Cash Rate was increased again to 5.5%. The Reserve Bank predicted further rises during the remainder of the year to control the threat of inflation.
Finally, the New Zealand dollar just keeps going up. Certainly expectations for the NZD to rise 7% against the USD were not a complete surprise with many market commentators calling for just such a movement.
However, what has been surprising is the timing, with most calls for a gradual, rather than sharp, appreciation in the currency. Of course, such sharp currency appreciation has severely hurt New Zealand investors whose overseas share exposures were unhedged.
To see how the numbers stacked up for various markets around the world in the past month and over the year, visit our
Monthly Market Reveiw hereAnthony Quirk is the managing director of Guardian Trust Funds Management
Anthony Quirk is the managing director of Guardian Trust Funds Management.
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