No gain without pain

By Greg Smith, Head of Retail at Devon Funds

September has been a tricky month for markets so far, with investors intently focussed on the tightening plans of the Fed and other central banks around the world, as many officials double down on efforts to contain inflation. At the same time economies have remained resilient, as have corporate earnings in many instances. This has certainly been the case in New Zealand with June quarter GDP coming in ahead of expectations by some distance, and the reporting season a solid one. This, and further weakness in our currency (which is positive for our exporters), has arguably helped the New Zealand stock market hold up better than many international peers.

In what has been a volatile month so far, the NZX50 is down around 1.5%. In comparison the S&P500 has fallen 5%, while the Nasdaq is nearly 6% lower as higher-priced growth stocks have fallen further out of favour amid concern over rising interest rates. Across the Tasman, the ASX200 is down almost 6% so far this month.

Globally, investors have been concerned around the view that interest rates will be ‘higher for longer.’ A hotter than expected inflation print in the US has provided the catalyst for recent volatility. The annual rate of inflation was lower at 8.3% but ahead of forecasts of 8% and “core” inflation accelerated for the first time in six months. This cemented the prospect of a ‘jumbo’ rate hike which was duly delivered when the Fed met.