COVID-19, KiwiSaver and investments - market updates
20 March 2020 / Published in Your MoneyKeeping you informed
We understand that many Kiwis want to keep up to date with what’s happening in financial markets during the COVID-19 (coronavirus) pandemic, we’ll make sure this page is updated as things develop. Markets have stabilised since May 2020, this means we’ll only update the blog when the situation changes significantly. Please note that the information below is current as at each of the dates specified and things can change frequently.
If you’re interested in finding out more about what’s going on, our economists write detailed updates that you can subscribe to here. Please also check out our blog for background on COVID-19 market volatility and why it's affected your KiwiSaver or Investment account balance.
Updated on 16 June 2020
By early June, many sharemarket indices were close to a full recovery from the sharp falls that were seen through March. In the case of the tech-heavy NASDAQ index of US shares, a fresh all-time high was set in early June. Then, on Thursday 11th, we got a reminder that it’s not a one-way street when it comes to sharemarket gains. We saw large dips of around 4-6.5% in the world’s major sharemarkets, and the biggest one-day falls since the COVID crisis took hold in mid-March. It’s difficult to pin-point an exact trigger for the financial market drop. The news wires were generally attributing it to both the US Federal Reserve’s cautious assessment of the US economy that was released prior to the drop, and fears about a possible second wave of COVID-19 infections in the US. It could just as likely be an overdue pull-back after the fast rise in stock markets over earlier weeks. US sharemarkets improved on Friday, gaining 1-2% of Thursday’s dip.
The financial market volatility we’ve been seeing over this year, including last week, shouldn’t put you off saving. The drop in March 2020 was very large, but the subsequent recovery over April and May has also been strong. Looking a little further back, the major sharemarket dip endured in late December 2018 was followed by an extremely strong year for investments in 2019.
The impact on your investment’s value during volatile times can help you understand your tolerance for taking risks, and ability to ride out periods of volatility in financial markets. In a similar vein, the strong recovery in markets and investment balances since March this year highlights the importance of sticking with well thought out, long-term strategies, rather than chopping and changing in an attempt to time the market. It’s important that the fund you choose is appropriate for your investment timeframe and savings goal. By taking the time to make sure you’re in the right fund, you’ll ensure that your investment has the right mix of growth and income assets to help you achieve your goals.
Updated on 25 May 2020
What’s happened and what does it mean for investment performance?
It’s hard to talk about anything these days without thinking about the impact of COVID-19, including in the investment world. But it’s worth reflecting that a little over five months ago, at the start of the year, share markets were pressing on to record highs, and a critical question for investors both here and abroad was “where to next” for interest rates (i.e. would they be going up soon). As recently as 12 February, our own Reserve Bank appeared very comfortable with its 1% Official Cash Rate setting, even though the news of the coronavirus in China was making headlines. The Reserve Bank of New Zealand (RBNZ) was not alone in its thinking. Global investors were confident, and their collective positive sentiment regarding the global outlook helped send share markets to all-time highs in February. As share markets rose, so too did the returns on investments.
From late February, the buoyant and positive situation changed drastically as the coronavirus went from a problem centred in a single region in China, to a global pandemic. Share markets that had been trading at record highs in February shed around a third of their value over late-February and March. The RBNZ and other central banks responded to the economic shock of the pandemic and associated lockdowns in March. They cut their respective policy rates to record lows and stepped into bond markets to provide liquidity and drive long-term yields lower. Governments, including our own, initiated massive support programs in late March and April. The low point in financial markets (and many people’s investment balances) occurred in late March, but since then we have seen share markets and bond markets recover, and investment balances recoup a significant proportion of the earlier declines. You can follow these links to view the latest returns for your investment in the ASB KiwiSaver Scheme, ASB Investment Funds, and ASB Superannuation Master Trust.
In early-May, New Zealand moved to Alert Level 2. If the move from Alert Level 3 was remembered for giving access to increased food choices (i.e. a break from our own cooking to a fast-food change), then the move to level 2 might be remembered as the chance to finally get a haircut. But on a more serious note, it meant that we made a positive step back towards a more normal life, with more contact with friends and family, as well as more people getting back to work and more businesses resuming operations. There’s still a long way to go, and a lot of challenges, but some encouraging signs are emerging.
Two big recent events were the 2020 Budget, and the RBNZ meeting in May. You can hear about them on our latest podcast here. The Government unveiled a massive spending programme to support the economy this month, and the RBNZ is also committed to keeping interest rates low by retaining the record-low 0.25% Official Cash Rate setting, as well as its upsized programme of Government bond purchases. You can follow these links to read more about ASB’s take on the 2020 Budget and the RBNZ actions.
It is encouraging to see that the strong responses from central banks and governments around the world and here in New Zealand are having the desired effects on economies. As we said in early May, we hope the low point for economic activity is behind us here in New Zealand and there is optimism offshore as some of the major economies tentatively re-open. Reflecting this optimism, share markets have been positive since late-March. At the time of writing, many of the major markets, including our own, are back to being within 10 to 15% of their levels in February, having been down by as much as 30 to 35%. Government bond yields are trading around record lows here and in many other countries, in a large part because of the actions of central banks. The lower bond yields combined with the share market recovery has been positive for investment balances. Investors that have checked their balances recently will notice a significant recovery from the late-March lows.
What should I consider?
We understand that it can be unsettling to see your investment balance change during times of volatility – but it’s important to remind yourself that it’s normal for share markets to go up and down. Historically, major share markets have always recovered – it’s when you make a hasty withdrawal or unplanned fund switch while markets are down that you tend to lock in losses.
As always, during times of market volatility, the best thing to do is think about when you’ll need to access your funds and make sure you’re in the right fund for your timeframe. Visit our blog for how to check you’re in the right fund.
The outlook
We caution that there are still some tough months of news to come: labour market strains will continue, and unemployment rates are yet to peak. Second quarter company results will also reflect the shutdowns around the world and there are still risks of further outbreaks of COVID-19. With these risks in mind, over the year ahead ASB economists expect to see even more action from governments and central banks to support economies. Interest rates are expected to stay low for several years, and governments, including New Zealand’s, will run large deficits to support their economies. Businesses will need to raise capital and adapt, as we transition from crisis mode to the world post-COVID-19. A lesson from the Global Financial Crisis was that monetary and fiscal policy do work. The recovery in share markets reflects a sense of optimism about the future. That optimism is fuelled by the massive support from the government spending and central bank actions being taken right now around the world.
To keep informed on our latest thoughts on financial markets, you can read and sign up for our Markets Monthly updates here.
Updated on 1 May 2020
We are now into our first week at Alert Level 3 and New Zealand has been getting some attention and praise on the global stage regarding how we’ve responded to COVID-19. An economic contraction is occurring right now, but we continue to be both pleased and encouraged by the sharp drop and sustained low level of new daily cases being reported.
Our hope is that the worst of the crisis is now behind us in New Zealand. A successful transition from Alert Level 3 to reopen the economy is key. The expectation that this transition will go well (both here and abroad) is part of the reason markets have recovered over recent weeks. The following diagram shows the performance of key sharemarket indices in New Zealand, Australia and the US from 1 January 2020 to the end of April.
We think this graph serves as a timely reminder that while sharemarkets can drop quite sharply, quite quickly, the reverse can also happen.
Negative interest rates have also made their way back into the news, as investors and economists ponder “what next” if the RBNZ needs to do more to support the economy. In today’s strange world, anything seems possible, but we do not expect the RBNZ to cut the Official Cash Rate below its current 0.25% setting this year. We do expect lots more quantitative easing (bond buying) from the RBNZ, along with interest rates remaining low, and in particular, term deposit rates are expected to stay low for several years, and risk getting even lower than today’s level.
Updated on 17 April 2020
We’re now entering the fourth and potentially final week of the Alert Level 4 lockdown and yesterday we got a glimpse of what Alert Level 3 would look like. We remain cautiously hopeful that our move to Alert Level 3 will happen smoothly, and we think its critical more businesses and people start going back to work so that the economic recovery can continue.
Over the past two weeks financial markets have certainly been more encouraging than they were in mid-March. Volatility in financial markets has generally reduced, sharemarkets have lifted significantly from the lows in March, and bond yields have remained low. Within the local bond market, the Government’s bond issuance has stepped up, and the RBNZ has been actively buying bonds, which is helping reduce bond market volatility, and keep yields low.
There is still a long way to go, and plenty of challenges for the economy, companies, and individuals. But overall, we are encouraged by the recent developments.
In the latest episode of the ASB Investment Podcast, Senior Wealth Economist Chris Tennent-Brown and General Manager Wealth Jonathan Beale discuss what’s been happening and what ASB’s forecasting for the near future. You can find this on Apple Podcasts or Spotify. If you’re interested in ASB’s latest view on the outlook for the New Zealand economy, you can also read our economics team’s analysis “COVID-19 Possible Paths in an Uncertain Future”, where we cover three scenarios that capture our central view, flanked by upside and downside scenarios.
Updated on 3 April 2020
Over the course of the last two weeks we have seen more initiatives from the Government and central banks, and more volatility in financial markets. Although sharemarkets, and most managed fund or KiwiSaver balances are still noticeably down on the levels recorded in February, it has been encouraging to see markets respond positively to the key developments in late March.
The RBNZ’s first action was to cut the Official Cash Rate to 0.25% back on Monday 16 March. Since then the RBNZ has deployed other measures to support the economy. One of the most important initiatives for financial markets was the RBNZ’s commitment to buy Government Bonds. This has restored some calm to the local bond market in late March and seen Government Bond yields settle lower. For more information, read ASB’s economic report and analysis on the RBNZ’s latest actions.
The Government’s decision to move New Zealand to Alert Level four is having a massive impact on the economy already. The latest data is showing that our spending patterns have already changed dramatically. These changes will have a major impact on Kiwi businesses, and the economy. See ASB’s latest forecasts.
In the major economies overseas, we have seen a similar co-ordinated response from governments and central banks. Central banks are committing to keep interest rates low, and governments are introducing massive spending plans to support economies in lockdown because of the COVID-19 virus pandemic. The low point for sharemarkets was around 23 March. However, we have seen an encouraging recovery since then as sharemarkets respond to the actions of the world’s major central banks and governments. There is also a greater sense of calm in Government bond markets, and government bond yields have settled at lower levels than a few weeks ago. These developments are positive for investments.
But there is still a long way to go. Economies will contract significantly over the coming months as the pandemic and associated lockdowns impact us all. Businesses are adapting right now. Some will survive and prosper, and others will struggle. We can see that already in New Zealand, with companies like Air New Zealand having to adapt rapidly to the almost complete halt of passenger flights. The service sector is in a similar situation as we all stay at home. At the other end of the scale, Fisher & Paykel Healthcare is busy working to ship medical products to help treat patients with COVID-19. It is a busy time for them as a business, and a tremendous time to be making a difference.
Even as our ASB investment and economics teams are working from home, we continue to complete all the same activities that we would do from the office. For investors, we appreciate that this is a frustrating time, but over the past two weeks we think it’s encouraging to see a string of positive days for investments providing some recovery in savings.
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