Global equity markets took a turn for the worse in May when support for anti-austerity political parties in Greece again jeopardised the nation’s membership in the euro zone. Generally disappointing economic dataflow in developed markets added to investor woes, particularly in Europe but also in the US. There was also further evidence that China’s economic slowdown may be more pronounced than many economists were forecasting, putting pressure on related stock and commodity prices.
In local currency terms, the MSCI All-Country World Index lost -6.8%. The decline was limited to -0.9% for unhedged NZ-based investors, with the NZ dollar dropping -5.9% against the MSCI-weighted basket of currencies.
The Australian ASX 200 index shed -6.6%, consistent with the decline in global markets and reflecting the region’s exposure to the resource sector. NZ stocks proved their defensive worth, with the NZX50 declining just -1.9%.
Global listed property was less affected by macroeconomic concerns but still declined -3.9%. The NZ Listed Property Index lost -1.8% compared to a -1.3% decline in the Australian listed property sector.
The adverse macro-economic environment was positive for bond markets with US Treasury yields plumbing the lowest levels since the Great Depression. The JP Morgan Global Government Bond Index rose 1.5%, with an index yield below 1.8%. The NZ Government Stock Index rallied 2.7%, with sovereign investors attracted to the positive real yields still on offer and relative safety of NZ Government bonds.
Euro zone on the rocks…
Macroeconomic concerns plagued equity markets as political wrangling in the euro zone continued to hit investor confidence.
Greek elections held in May failed to deliver an election majority to any party or, subsequently, form a viable coalition. This raised concerns about a potential Greek exit from the euro zone. A fresh election is to be held on 17 June and fortunately, recent opinion polls place the pro-bailout centre right New-Democratic party ahead of the radical leftist party Syriza.