The global equity market initially continued a downward trend, but then reverted later in the month. Amid April US inflation data exceeding expectations and another month of strong job and wage growth, the US Federal Reserve hiked rates by half a percentage point and indicated similar hikes would occur in proceeding meetings. In light of tightening monetary policy, tech stocks, which experienced exponential growth during the pandemic, continued to underperform over the month. The tech sell off also spilled over into the private sector, with some notable write downs of unlisted tech investments. One venture capital firm pointed out that “start-ups needed to transition from a growth at any cost model to a focus on profitability and capital preservation”.

Closer to home, the reserve banks of Australia and New Zealand raised their cash rates by 0.25% and 0.5%, respectively, which was largely expected by the market. This placed additional upward pressure on mortgages, and national house prices in New Zealand fell in response. Recognising the strain on consumers, the government’s budget, released in May, included a $350 payment for most citizens earning $70,000 or less, with the intention to alleviate the rising costs of living.

There were signs of a potential cost of living crisis in the UK as well, with annual inflation reaching a high of 9% in April. Soaring prices were also a focus point at the World Economic Forum, held in Davos, Switzerland.  The forum presented a particularly negative outlook on Europe, as the ongoing conflict in Ukraine intensified supply chain issues and prompted an energy crisis across the continent. In response to Russia’s invasion, European leaders agreed to ban 90% of Russian crude oil by the end of the year, and Finland and Sweden continued to express interest in joining NATO.

April inflation data in China also came in above analysts’ expectations as the country’s zero-Covid policy placed upward pressure on prices. Additionally, retail sales and industrial production dropped significantly, as the unemployment rate ticked higher in April. However, market sentiment improved at the end of May when China eased restrictions in Shanghai and Beijing, and the central bank lowered the five year prime loan rate.

The global share market ended May with a slight loss after an initial selloff and subsequent recovery midmonth. Property and Australasian equity markets sold off, and New Zealand shares continued to lag global peers.

After a period of extended negative performance, New Zealand fixed income eked out a slight gain over the month, continuing to outperform global peers as the global bond market experienced a small pullback. However, both New Zealand and global fixed income have ‘bad’ one year performance relative to the last twenty years, as high inflation and rising rates hampered fixed income asset classes.

Reverting some of the negative performance in the prior month, the New Zealand dollar rallied against the US dollar on the back of the RBNZ’s 50 bp rate hike. However, the NZ dollar depreciated many other currencies.

The New Zealand share market underperformed global peers over the month, led by Fletcher Building (FBU), which continued a downward trend amid rising interest rates and a subsequent slowdown in the New Zealand housing market.

Similarly, Contact Energy (CEN) fell on the back of the RBNZ rate hike, as investors were mindful of the Gentaliers’ interest rate sensitivity.

Ryman Healthcare (RYM) bucked the trend of negative performance in the NZX10, finishing May with a return just over 8%. Strong demand in Australia led to a swift recovery in Ryman’s operations in Victoria, with a similar recovery expected in New Zealand later this year. As a sector hampered by headwinds from Covid-19 and a slowing housing market earlier in 2022, the company’s announcement of boosted profit and further retirement village developments eased investors’ concerns and put Ryman at the top of the leader board for the ten biggest stocks in New Zealand.

Source: Wealthpoint

The information in this document is provided for general information only and is not intended as advice. Past performance is not necessarily a good indicator of future returns. Data for this document has been sourced from Refinitiv Datastream, however the information contained herein is not guaranteed and does not purport to be comprehensive.