When COVID-19 initially appeared, some people compared it to the seasonal flu and thought it would all be over by the Northern Hemisphere Spring. It is now over 170 days since the first case in Wuhan was reported and 100 days since the World Health Organisation (WHO) declared it a global pandemic. Yet, with countries starting to remove restrictions on gatherings, we are now seeing a second wave of infections. There is, therefore, little doubt that COVID-19 will impact the global economy for a considerable period of time. The chances of New Zealand and Australia creating a travel bubble this year also seem to be receding by the day. Despite this downbeat prognosis, we remain positive towards growth assets, such as shares. As countries have relaxed their restrictions, economies have rebounded strongly. Some of this reflects pent-up demand and consumers adopting a desire to support their local communities. While we expect some of this rebound to fade, we still expect economic growth...

As the world braces for a potential second wave of infections from COVID-19, shares are pricing in a booming global economy and currency volatility is rising. As we have discussed previously, willingness to be positive and forward-looking in part reflects the ‘bazooka’ efforts by governments to backstop the economy. Furthermore, central banks have adopted a strategy that works like a one-way ratchet, providing a floor for share prices but never a ceiling. This backstop has unintended consequences. Citi’s chief equity strategist asked in a recent research report whether the market was “Getting Bubblicious”, as Citi’s closely followed Panic/Euphoria index reached its most euphoric level since 2002. But perhaps most dangerous is the euphoria coming from retail investors via emerging platforms, such as Sharesies in New Zealand and Robinhood in the United States. These trading platforms provide an entry into day trading for a large, usually younger population of otherwise inexperi...

To gain a globally diversified exposure to different asset classes, NZ Funds uses a combination of internally and externally managed strategies. NZ Funds manages assets in-house where we believe we have an advantage in doing so, and partners with global managers to invest the remainder of clients’ capital. When we look for global diversity, a unique advantage we have is our ability to identify and access top performing global managers. We have over two decades of research on managers across numerous asset classes and geographies. This gives us a rich dataset from which we can select managers that we believe will give our clients the strongest risk-adjusted returns over the long term. Our global manager selection process continually evolves. As part of our ongoing due diligence, we hold meetings with potential and existing managers throughout the year. Our schedule includes travelling to Asia, New York, and London, where many of the world’s leading managers are based. More rece...

Along with other commentators, I have previously lamented the fact that the majority of the $57 billion 1 held in KiwiSaver funds has been invested without financial advice. This lack of advice means that there has been little or no thought applied to the mix of investments (asset allocation), the individual’s risk profile, their investment purpose (e.g. retirement or first home purchase), and their investment timeframe. One of the risks that this lack of advice creates was revealed in March when we experienced a 30% contraction in global share markets. At that time there were people who couldn’t settle their first home purchases because their balances had shrunk. And others that, in a panicked response, switched out of their higher growth asset allocation just in time to avoid the strong market rebound that occurred in April. They ‘locked in” what proved to be temporary losses in share markets and exchanged this for a more stable but low growth future in cash and fixed interes...

One of the most common questions we are asked is does the rosy outlook and performance of share markets make us uneasy when it is contrast against the underlying economy? In this Investment Insight we answer why a share market recovery will differ from the wider economic recovery. Share markets in the United States and New Zealand have followed a dramatic V-shaped recovery. As we wrote in 01 May 2020 | Market Update 9 , a V-shaped recovery represents the most bullish outlook and would consist of a rapid return to the same level of output once social distancing restrictions are removed. While the brutal sell-off has now given way to a lively recovery in the share market, a V-shaped path for the economy—a brief recession, followed by a swift recovery—seems unlikely. The scale of job losses in New Zealand and globally suggests the economy is in a hole too deep to climb out of quickly. So why has the stock market rallied so hard? Share markets tend to be forward-looking. Inve...

What is now commonly dubbed the ‘United States - China trade war’ is a series of tariff-imposition threats and actions started by the United States against China at the beginning of 2018 and responded to by way of similar retaliatory measures by China. At the root of the ongoing trade dispute is a disagreement over technology. The United States believes that the subsidies China offers its tech sector provide those firms with an unfair advantage over United States tech companies. Overlaying the issue of ‘fairness’ is a concern that Chinese technology could threaten United States’ national security. China denies any security threat and is reluctant to abandon the support it provides its own tech companies. Tariffs imposed by the United States are at the centre of the trade war, but are unlikely to be fatal for global growth. The United States exports 0.6% of its GDP to China. China has more at stake given it exports 3.6% of its GDP to the United States. However, even after the cur...