Halfway to a soft landing
Inflation is falling whilst economic growth looks to be resilient, delivering what investors have termed a “soft landing”. Last month, markets continued to unwind the scarring effects of the US regional banking crisis. Global shares rallied sharply whilst bonds were modestly lower. Overall, Milford’s funds delivered a positive performance for the month.
The strength in global shares was delivered by a broader set of companies in June, with US shares notable outperformers. Many of our key holdings enjoyed strong gains in June and they came from a range of industries. Key healthcare pick HCA Healthcare was up 15.1%, industrials company Wesco rallied 30.6%, home improvement store Lowe’s was up 12.2% and Facebook owner Meta continued its strong run with an 8.4% gain.
New Zealand and Australian shares were underperformers in June. Chinese growth impulse is waning, although Australian resource companies were strong on hopes of stimulus measures. In NZ, Infratil undertook a capital raise in June, allowing us to add to our holdings at a reasonable discount.
Bond markets were modestly lower in June as a stronger than expected global economy increased expectations for further rate hikes. We continue to think that elevated yields on short-term cash and bond investments can provide a solid anchor for portfolios going forward.
The soft landing outcome illustrates the resilience of global economies to the sharp interest rate hikes over the past 18 months. However, there is evidence that the global economy is on a slowing trajectory. New Zealand is arguably ahead in the cycle and data released in June revealed that we have already had two quarters of negative GDP growth. To a degree, economic growth and inflation go hand in hand. Will inflation fall sufficiently before the tightening in monetary policy does too much harm to the economy? The answer will likely reveal itself over the next six months, and chances are we will have some false signals along the way.
We retain a healthy scepticism around the outlook, with a diversified approach to delivering future returns whilst managing the risks. A nimble approach will be key as the cycle unfolds.