Investment Commentary 31 December 2014

Encouraging economic data released during December was not enough to offset investors’ collective worry about valuations, with equity markets broadly down at the end of December. Plummeting oil prices has created yet another element of uncertainty for investors. Global bond yields continued their march lower as major central banks continue to show no signs of hiking interest rates anytime soon. Indeed, market participants are now looking to the ECB to perhaps announce full-scale QE at its January meeting, as well as hoping Japan can somehow fire its way out of the path of deflation.

 

The MSCI World Index returned -0.8% (in local currency) over December, with an escalating NZ dollar further eroding returns for unhedged investors to -1.2%. In contracts, NZ Shares were up +2.7% in December. NZ Bonds also increased +1.1%, as did Hedged Global Aggregate Bonds, up +0.8%. Global Listed Property was also up returning +1.6%.

 

Significant recent items include:

  • Oil continued its much covered decent, with Brent Crude falling some 17% to $57.90 per barrel during December alone. The benchmark grade finished 2014 50% off the year’s high at prices not seen since early 2009.
  • In what looked like a Hail Mary pass on Dec3ember 16, the Russian central bank raised its key interest rate +6.5% at 1am Moscow time to 17%, only 5 days after raising it 1%, in a bid to stem the decline of the ruble. The Russian currency declined 12% during December and was down 44% for 2014.
  • Japanese Prime Minister Shinzo Abe won re-election after calling early elections to confirm his seat in power for a futehr four years. Mr Abe is under increasing pressure to fire the ‘third arrow’ of his plan to revive Japan
  • S economy. Monetary and fiscal policy have both been well and truly loosened, but Japan is yet to see the kind of growth or inflation that Mr Abe has promised.
  • Euro area inflation took a step backward in November, recording a month on month drop of -0.2% leaving year on year inflation barely alive at +0.3%.

An estimate of a balanced fund index return based on selected market indicators for December was 0.6%

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