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  2. Q1 2017: Market Update

Market overview

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Growth and inflation both have been picking up globally. Growth in the economic sense should continue to be helpful for equities, whilst rising inflation will be challenging for bonds and other income assets. There still remains some uncertainty in the market, partly thanks to Trump but not without contribution from various other areas. Locally, the New Zealand economy looks to remain in strong shape and barring shocks from abroad the current business cycle look to continue into 2018. 

Interest Rates
There has been little change in short-term rates with the Reserve Bank of New Zealand holding the OCR at 1.75%. Long term rates remain closely in sync with US bond yields, both rising late last year but not having moved much since then. Looking ahead there are a few economists that predict that the next move could be a rate reduction however, the big banks are unanimous in expecting the current OCR to hold at this level for quite some time. This expectation spells more bad news for conservative investors and savers with bank deposit rates set to remain at these low levels for some time.

Currency
The New Zealand dollar is down across the board apart from a weak rise against the British pound. Forecasts on future movements of our local currency are a little harder to summarise, however, broadly speaking we expect it to hold its value over this year with a slight weakening in 2019 on the cards.

Property
The New Zealand property sector started the year strongly reaching a peak in January however, prices have weakened slightly since then, mainly due to the imminence of rising interest rates in conjunction with the lending restrictions imposed last year.

Shares
We have seen respectable performance out of the S&P/NZX 50 with it posting a 3.0% capital gain year to date, 3.6% including dividends. January was the month that gave us the growth with February and March trending flat. Looking forward our consistently growing economy will support business performance with most analysts expecting a profit per share rise of approximately 6% in 2017. International equities have continued to benefit from the post-Trump rally with a strong performance in the first 2 months of the year. The U.S has been the strongest developed market, whilst European shares are on the up with the strengthening of the European economies.

The outlook for global equities remains positive mainly thanks to growing economic activity and pleasing job figures when talking about the U.S alone. The UK will now enter more trying territory as it deals with the realities of Brexit, the touchy issue of trade with the EU comes to the fore.

Overall, we can see that there are many moving parts in the investment world, each with their own risks. This fact just serves to reaffirm the importance of having an adequately diversified portfolio and ensuring that your investment remains in line with your risk profile.

Morgan Smith | Senior Paraplanner and Investment 
morgan@wealthworks.co.nz 

 
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