New Zealand Equity Monthly August 2024
RBNZ’s August rate cut seen as a positive sign for equities.
Wednesday, September 4th 2024, 2:52PM
By Michael Sherrock, Head of Equities, Nikko AM
Global markets have been volatile amid changing interest rate cut expectations
Global equity markets showed significant volatility in recent months as they reacted aggressively to comments from central banks and economic data amid anticipation over interest rate cuts. At the same time, economists and forecasters were proactive in responding to changing data by adjusting the timing and size of their rate cut expectations, thereby contributing to further market movements. One notable example is the US market, which whipsawed on contrasting economic data as market participants searched for signs of the likely timing and pace of rate cuts by the Federal Reserve. The Reserve Bank of Australia (RBA) was a significant outlier in this environment. In its latest monetary policy statement (dated 6 August), the RBA left its cash target rate on hold at 4.35% and indicated that Australia is unlikely to see rate cuts in the near future, citing above-target inflation and uncertainty in the economic outlook.
RBNZ already on looser monetary policy track with August rate cut
In contrast, the Reserve Bank of New Zealand (RBNZ) has been taking a more dovish stance since July. In a media release published on 10 July, the RBNZ signalled a pivot away from monetary tightening by stating that monetary restraint “will be tempered over time consistent with the expected decline in inflation pressures”. New Zealand equities reacted positively to the change, with the S&P/NZX 50 Index of the 50 largest names on New Zealand’s Exchange ending July approximately 6% higher. The RBNZ followed up its change in tone with a quarter-point reduction in New Zealand’s Official Cash Rate (OCR) in the central bank’s Monetary Policy Statement on 14 August. The cut from 5.5% to 5.25% marked the first change in the OCR since a quarter-point hike in May 2023. Given that New Zealand equities rose by approximately 2% on the day of the August rate cut, the future trajectory of the OCR will be an important consideration for the stock market. The RBNZ projects that the OCR will have fallen to the 3% level by mid-2027.
Monetary policy seen as positive for equities given market’s rate sensitivity
Given the S&P/NZX 50 Index’s composition, the New Zealand equity market is particularly sensitive to movements in interest rates. One of the largest sectors in New Zealand’s market is real estate, which has significant sensitivity to interest rates due to the impact of mortgages on real estate demand and prices. Another example of a sector with a large weighting in New Zealand’s market is the retirement sector, which is impacted by interest rates through its link to the residential housing market. The current direction of interest rates suggests that monetary policy could be a positive for New Zealand equities going forward.
Important information: This document is prepared by Nikko Asset Management Co., Ltd. and/or its affiliates (Nikko AM) and is for distribution only under such circumstances as may be permitted by applicable laws. This document does not constitute personal investment advice or a personal recommendation and it does not consider in any way the objectives, financial situation or needs of any recipients. All recipients are recommended to consult with their independent tax, financial and legal advisers prior to any investment.
This document is for information purposes only and is not intended to be an offer, or a solicitation of an offer, to buy or sell any investments or participate in any trading strategy. Moreover, the information in this document will not affect Nikko AM’s investment strategy in any way. The information and opinions in this document have been derived from or reached from sources believed in good faith to be reliable but have not been independently verified. Nikko AM makes no guarantee, representation or warranty, express or implied, and accepts no responsibility or liability for the accuracy or completeness of this document. No reliance should be placed on any assumptions, forecasts, projections, estimates or prospects contained within this document. This document should not be regarded by recipients as a substitute for the exercise of their own judgment. Opinions stated in this document may change without notice.
In any investment, past performance is neither an indication nor guarantee of future performance and a loss of capital may occur. Estimates of future performance are based on assumptions that may not be realised. Investors should be able to withstand the loss of any principal investment. The mention of individual securities, sectors, regions or countries within this document does not imply a recommendation to buy or sell.
Nikko AM accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this document, provided that nothing herein excludes or restricts any liability of Nikko AM under applicable regulatory rules or requirements.
All information contained in this document is solely for the attention and use of the intended recipients. Any use beyond that intended by Nikko AM is strictly prohibited.
| « Smart advisers spice up offerings with SME lending | How Kiwis can invest in the world’s best companies » |
Comments from our readers
No comments yet
Sign In to add your comment
|
|
Printable version |
|
Email to a friend |
