Market Commentary

Global equity markets continued their recent run of strong performance over February. The MSCI ACWI (NZD Hedged) was up 4.7% and closed at another record high, as did the leading indexes in USA, Japan and Europe. One departure from recent months was China and Hong Kong equities which also posted very strong gains, outperforming most other markets after disappointing results over 2023. Global bonds also continued their recent trend, with yields moving higher on expectations central banks will not cut rates as aggressively as markets priced in at the end of 2023. The Bloomberg Global Agg Index (NZD Hedged) was down -0.7% for February, a second month of negative performance on the back of the very strong returns posted over the last two months of 2023. Global investment grade (IG) spreads tightened by 4bps while US HY spreads narrowed by 32bps. In equities, the MSCI ACWI Index (NZD unhedged) was up 5.4% for February, benefiting from a slightly weaker Kiwi dollar which was down 0.5 % versus the USD. 

Some of the more economically sensitive sectors posted the strongest gains over February. Consumer discretionary was up nearly 8% to lead the pack, and Industrials was up 5.7%. Information Technology continued its incredibly strong performance, advancing 6.1%. Defensive and/or interest rate sensitive sectors such as Consumer Staples (+0.4%), Utilities (-0.8%), and Real Estate (1.5%) were the laggards for the month. On a regional basis (all returns in local currency) China was the best performer, up 9.4%, with Hong Kongs Hang Seng Index up 6.6%. Japan had another strong month (+7.9%) and is the best performing region by far on a year-to-date basis, as did the US (S&P500 Index up 5.2%) and Europe (Euro Stoxx50 Index up 4.9%). The NZ, Australia and UK markets were laggards over February, returning -1.1%, 0.2% and 0.0% respectively. On the economic front, the US economy continued to hold up well, with labour market data suggesting ongoing resilience and January PMI surveys positive. It was more mixed in Europe, annual inflation fell to 2.6% YoY and there were positive readings for the services sector, but manufacturing activity remained below par.