Still Waters
July saw share markets deliver mixed returns, masking significant volatility beneath the surface. A rotation within technology stocks drove sharp reversals in several holdings, while a stronger New Zealand dollar and softer bond markets meant Milford funds registered a modest negative return for July, a rare interruption to an otherwise positive run.
The technology rotation was the dominant theme. Holdings that had lagged in recent months rebounded strongly — Microsoft (+24.6%) and Amazon (+13.9%) were standout contributors, a reward for the positions we added during their June weakness. Meanwhile, some of the recent high-flyers gave back ground, with Taiwan Semiconductor (-15.4%) and Micron (-28.7%) the most notable detractors. Outside of technology, the broader share market was steadier, with investor optimism around global growth continuing to support a wide range of companies.
Bond markets weakened, driven by a re-escalation of Middle East tensions and a renewed rise in oil prices. With global growth remaining robust and inflation elevated, markets continue to price the risk of further central bank rate hikes. keeping pressure on bonds.
The New Zealand dollar staged a sharp rebound in July, partly reflecting US dollar weakness but predominantly driven by the RBNZ hiking rates — characterised as a removal of policy accommodation. While further hikes are possible, we believe market pricing of four additional hikes over the next year is overdone. This keeps us constructive on New Zealand bonds and relatively neutral on the outlook for the New Zealand dollar from current levels.
Looking ahead, the partial unwinding of speculative excess in AI-related stocks has left the theme on a more sustainable footing — and we are more optimistic about opportunities within it as a result. Beyond technology, the broader investment backdrop remains supportive, with company fundamentals still solid. However, much of this optimism is already reflected in market pricing, so we are maintaining a disciplined approach to positioning. This means balancing exposure to areas where we continue to see opportunity with resilience should growth expectations ease.
