Harbour Investment Outlook: Let the good times roll

Harbour Investment Outlook: Let the good times roll

Key market movements

• The MSCI All Country World Index (ACWI) increased 4.4% last month, in New Zealand dollar-unhedged terms, almost matching last month. This time the strength had very little to do with NZD weakness as returns in NZD-hedged terms were 4.1% for November.
• Locally, the New Zealand equity market had another good month, with the S&P/NZX 50 Gross Index (including imputation credits) increasing 3.4%. The S&P/ASX 200 Index also performed well, up 3.8% (3.7% in NZD terms).
• Bond indices gained in November. The Bloomberg NZ Bond Composite 0+ Yr Index gained 0.6%, reversing October’s decline. The Bloomberg Global Aggregate Bond Index (hedged to NZD) gained 1.2% over the month. US 10-year government bond yields were 12bps lower on the month, ending at 4.17%, whilst the New Zealand 10-year yield dropped 10bp to finish at 4.38%.

The global economy isn’t likely to experience a hard landing in 2025 as ongoing disinflation allows most central banks to deliver further rate cuts and respond to any unanticipated labour market weakness. Most analysts expect annual growth of around 3%, like 2024. In the US, the consensus appears to be that Trump’s bark will be worse than his bite. Q4 GDP is tracking at an annualised 2.5-3.0% q/q, headline inflation is 2.6% and the unemployment rate is just 4.1%, way below the long-term average of 5.7%.  In response to better US economic data and a Trump victory, the market has lifted the implied trough in the Fed Funds rate over the past six weeks to 3.7%, from 3.3%, which seems appropriate.

China announced a CNY10 trillion stimulus package in early November focused on local government debt relief, disappointing market expectations of broader fiscal stimulus that would help boost consumption and the property sector. The Chinese Government appears cautious about central involvement, emphasising local responsibility for hidden debt to uphold fiscal discipline and mitigate moral hazard concerns. The finance minister reiterated plans to support the property sector, strengthen state banks, and expand fiscal policy next year, but offered no substantial new details.