Investment market commentary - 30 September 2024

The market delivered strong investment returns in September with the S&P 500 hitting record highs during the month. This came as a relief, as September is often one of the worst months for investment returns. However, this year the ‘September Effect’ failed to materialise due to interest rate cuts by the US Federal Reserve (Fed) alongside stimulus in China. 

Investors celebrated after the Fed reduced its key interest rate for the first time since March 2020. Fed Chair, Jerome Powell announced that the reduction heralded the start of a new rate cutting cycle, though the US economy remains in good shape. The 0.50% reduction was larger than normal, prompting global shares¹ to finish the month up 2%, driven higher by US shares.  

Emerging markets² performed well, gaining around 6% as Chinese shares³ surged 21% after Beijing announced comprehensive stimulus to shore up the economy in response to the country’s sluggish economic growth and weak housing market. 

Closer to home, Australian shares⁴ rose by around 3%, propelled by the resources sector, which stands to benefit from Chinese stimulus.  Unfortunately, the story in New Zealand wasn’t as positive, with the NZX 50 falling slightly over the month. Capital raisings by market heavyweights, Fletcher Building and Auckland International Airport, weighed on market returns. 

September saw domestic and international bonds perform well with prices generally rising on the back of Fed rate cuts, particularly for shorter-term maturities. Bond prices and yields have an inverse relationship, so when prices rise, yields fall. As a result, yields on the US 2-year Treasury bonds fell to 3.7%, while 2-year NZ Government bonds yields declined to 3.8%. 

The differing fortunes of various asset classes are shown in the chart below. 

Note: Returns are in local currency terms.  

What this means for your funds over the September quarter 

The chart below highlights returns for all funds in the MAS KiwiSaver Scheme. Returns for comparable funds in the MAS Retirement Savings Scheme and MAS Investment Funds⁵ are very similar. 

Growth assets (shares) outperformed income assets (bonds) over all periods in the chart. As a result, more growth orientated funds have outperformed more conservative funds over the period. 

* Returns are after total annual fund charge and before tax 

The outlook 

As we approach the end of the year, several issues remain forefront for investors. Previous concerns over inflation have now been replaced by worries about slowing economic growth. Central banks in the US, Europe, China, and NZ are now clearly responding to these headwinds. 

In the US, the fabled ‘soft-landing’ for the US economy remains very much alive. In fact, we believe the odds of a soft-landing occurring have risen now that the Fed has begun to cut interest rates, and recent data suggests that the labour market is bending, but not breaking. 

In China, authorities have announced a smorgasbord of stimulatory measures aimed at stabilising the economy and property market. Whether these succeed at reflating the economy in the face of ongoing structural challenges is questionable, but we believe the support can help reduce economic risks in the short term.  

Our overall view is that the global economic outlook is becoming more positive. While we have been hopeful that a soft landing could be engineered, historically achieving this has been challenging. However, policy support and US economic resilience have reduced economic risks and the odds of a sharp downturn in share markets. As a result, we no longer believe a modest underweight to international shares is warranted and are moving to a more neutral footing.  

While risks have reduced, they haven’t disappeared. We continue to monitor several key factors that could create volatility in the months ahead. These include geopolitics, elections, the potential for earnings and economic growth disappointments, or even a resurgence of inflation. In addition, some equity markets (especially the US) appear to be fully priced. This is why we are shifting the Schemes’ exposure to international shares to a neutral, but not overweight, setting.   

We have useful online tools to help you:

• Our Fund Finder can help you see if you're in the right Fund for your circumstances.   
• Our KiwiSaver Retirement Calculator can help you understand if your retirement savings are on track.
• Our MAS Investor Portal can help you manage your investments online.

If you decide to change your Fund after reviewing your risk profile or meeting with a MAS Adviser, you can make a switch via the MAS Investor Portal, or alternatively you can complete an investment strategy change request form. There is no fee for switching. Links to the relevant forms are below.     

• MAS KiwiSaver Scheme: KiwiSaver Documents and Forms – MAS  
• MAS Retirement Savings Scheme: Retirement Savings Scheme Documents and Forms – MAS  
• MAS Investment Funds: Investment Funds Documentations and Forms

You can see weekly updates on fund unit prices and returns on our website:  

• MAS KiwiSaver Scheme: KiwiSaver Funds – MAS  
• MAS Retirement Savings Scheme: Retirement Savings Scheme Funds | MAS – MAS  
• MAS Investment Funds: Investment Funds – MAS