The volume has been turned up
Words: Mark Riggall, Portfolio Manager
Video: Stephanie Batchelor, Senior Analyst
August ended up being a modest month for returns, with most funds largely holding on to the significant recent gains. But the path over the month was wild, with large swings across shares, bonds and currencies.
Front and centre for investors is the path of interest rates around the world, as developed market central banks embark on a rate cutting cycle, set against Japan where rates are rising for the first time in decades. This sparked a sharp rally in the Japanese Yen, which in turn saw volatility across share markets as investors unwound positions. Compounding the moves were fears around a weakening US economy and some fatigue with the AI theme, making for a very noisy month.
Global shares whipsawed in August, but settled higher. Encouragingly, it was a broad performance, but large-cap technology shares lagged. With a US rate cutting cycle almost certain to commence in September, investors have become more optimistic about economic growth going forward. This has propelled prices of stocks closely linked to the fortunes of economies, including materials company CRH plc (up 6.3%) and transaction processing software provider Fiserv (up 6.7%). Local NZ and Australian shares finished slightly higher on the month, following a very strong July.
Bond markets continued their strong run in August, as expectations for swift rate cuts around the world increased, buoying bond prices. This price action has continued to support the lower risk funds lately, with these bond heavy funds performing strongly.
Looking ahead, market expectations are perhaps a little ahead of themselves. The bond market expects lots of interest rate cuts and is attuned to any signs of weakness in economic growth data, particularly labour market indicators. Meanwhile, the share market appears sanguine about the risk of a growth slowdown. Of course, there remain pockets of opportunity and we continue to find areas of value in places like the UK, as well as infrastructure companies, which should benefit from a rate cutting cycle. Broadly, market performance will be very sensitive to economic data and with the US election also approaching, it is reasonable to expect more noise in the months ahead.