Quarterly Economic Update

Analysing Q2 2023: Investment Market Performance in Australia and New Zealand

As we navigate the financial landscape, staying informed about the performance of investment markets is essential for sound decision-making. The second quarter of 2023 (1 April to 30 June) brought both challenges and opportunities to investors in Australia and New Zealand. In this article, we delve into the quarterly performance of investment markets in the region, shedding light on key trends and factors that shaped the outcomes.

Australian investment market overview

During the second quarter of 2023, the Australian investment landscape exhibited a mixed picture, influenced by a combination of global and domestic factors:

• Equity markets: Australian equities experienced moderate volatility during the quarter. The S&P/ASX 200 Index, representing the top 200 companies on the Australian Securities Exchange (ASX), was broadly unchanged over the quarter. Factors such as concerns around recession and uncertainty around interest rates contributed to this fluctuation.
• Housing market: the Australian housing market continued to capture attention, as despite higher borrowing costs, property markets remained resilient. While some major cities experienced a moderation in property price growth compared to previous quarters, others maintained steady demand, particularly in major cities. Government policy initiatives, mortgage rates and changes in buyer sentiment played roles in shaping the housing landscape.
• Interest rates and monetary policy: the Reserve Bank of Australia (RBA) raised the target cash rate by 0.5% over the quarter, reflecting its commitment to reducing inflation. This stance aimed to strike a balance between managing inflationary pressures and supporting the broader economy.

New Zealand Investment Market Highlights

The investment market and economy in New Zealand faced similar pressures in the second quarter of 2023:

• Equity markets: The NZX 50 Index, which tracks the performance of the top 50 companies listed on the New Zealand Exchange, also experienced volatility over the quarter but was broadly unchanged during the period. While global events influenced sentiment, the New Zealand market demonstrated resilience, driven by strong performances from sectors such as technology, utilities and primary industries.
• Housing market: The New Zealand housing market remained a focal point as well. The trend of varying regional price growth continued, with some areas experiencing more substantial increases than others. Supply and demand dynamics, along with affordability concerns, contributed to the ongoing conversation about housing market trends.
• Monetary policy and interest rates: The Reserve Bank of New Zealand (RBNZ) continued to raise rates over the quarter, implementing a 0.5% rate rise in April and a 0.25% rise in May. The rate rises continue to be required to reduce inflation, however, will add to the cost of living pressures in New Zealand.

Global factors impacting both markets.

Both the Australian and New Zealand investment markets were also influenced by global developments during the second quarter:

• Inflation concerns: rising global inflation rates led to investor unease, prompting market participants to closely monitor central bank policies and interest rate expectations. The potential impact of inflation on purchasing power and investment returns was a focal point of discussions.
• Geopolitical events: the ongoing conflict in the Ukraine and global political pressures continue to play out. Investors were attentive to these events for potential implications on market sentiment and economic growth.
• Commodity prices: The performance of key commodities, such as oil, metals and agricultural products, played a role in shaping market dynamics. Changes in commodity prices influenced sectors ranging from resources to consumer goods.

Navigating the landscape

Although central banks continue to raise interest rates around the world to combat inflation, economic growth has broadly remained resilient and unemployment is at relatively low levels in the region. It is important to note that interest rate rises do take time to fully take effect in the economy, and therefore risks remain to the economy and employment markets. In addition, elevated interest rates will also impact businesses and borrowing costs, therefore the risk of business defaults may increase (albeit from currently low levels). On a more positive note, it appears that inflation rates have likely peaked and cost of living pressures are unlikely to spiral.

Staying updated on market trends, understanding the drivers of performance and aligning investment strategies with individual goals and risk tolerance are key steps in achieving financial objectives.

It’s important to note that the information provided in this article is for general information purposes only and should not be considered as personalised financial advice. Each individual's financial circumstances are unique, and it is recommended to consult with qualified professionals before making any investment decisions.

Remember, the investment landscape is subject to change and it's essential to consider the most recent and relevant information when making financial decisions.