Market Review: More of the same
Guardian Trust Funds Management managing director Anthony Quirk finds little to change his view that 2004 will be "hard going" for most markets
Wednesday, March 3rd 2004, 9:29AM
by Anthony Quirk
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This market summary is provided by Guardian Trust Funds Management. To see how the numbers stacked up for various markets around the world in the past month and over the year, visit our Monthly Market Review here |
Little occurred over February to change our view from last month's commentary that 2004 will be "hard going" for most markets, with double digit returns unlikely in traditional investment sectors. Indeed recent economic and market information has reinforced our outlook and so this month's commentary is shorter than usual.
Global equity markets struggled to gain any momentum through the month and finished close to flat for most major markets. When the slight rise for the kiwi dollar over the month is allowed for, the result was a negative return for February for the unhedged MSCI World Index of 0.7%. The strong run in the NASDAQ (up 52% in the past 12 months) has also come to end, with it falling for six consecutive weeks.
The domestic share market also retreated with the NZSX50 down 1.3% for the month and the star sector from last year, small companies, down 4.3%. This is despite a good recent earnings reporting season in New Zealand. As predicted in our last note, given already high expectations, companies exceeding forecasts were the exception and their share prices were marked up where this occurred. In contrast companies were hammered if they reported disappointing numbers.
Domestic and global bond markets achieved good returns over the month, 1.1% and 1.4%, respectively. However, it is hard to see much more than coupon returns for the rest of the year, unless a global economic collapse occurs. This seems unlikely and we actually have the prospect of the best period of co-ordinated global economic growth for some time although equity markets appear to have priced this in already.
The lack of reaction to a solid earnings season in the US reinforces the view that the market as a whole feels "toppy" and that companies really need to do something special to be re-rated upwards from current levels.
Some economists are talking of an increased possibility of a "hard landing" for the New Zealand economy in late 2004 or into 2005. We concur with this view as it will be hard to defy the negative forces of a high kiwi dollar, falling migration levels, easing business and consumer confidence and a pause, and possibly a drop, in house prices.
Even so, a few economists are still picking the Reserve Bank of New Zealand will raise rates further next week and even suggesting they will go again in April to lift the cash rate to 5.75%. We would be staggered if the RBNZ does move this way. It will dramatically increase the possibility of a hard economic landing going into next year's election and will keep the kiwi dollar higher for longer – not a pleasant prospect for most New Zealanders or for the current Labour Government!
To see how the numbers stacked up for various markets around the world in the past month and over the year, visit our Anthony Quirk is the managing director of Guardian Trust Funds Management Anthony Quirk is the managing director of Guardian Trust Funds Management. Special Offers
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