Economic Update - September 2023

Analysing Q3 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 third quarter of 2023 (1 July to 30 September) 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 these regions, shedding light on key trends and factors that shaped the outcomes. 

Australian investment market overview

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

• Share market: Australian equities declined during the quarter. The S&P/ASX 200 Index, representing the top 200 companies on the Australian Securities Exchange (ASX), was down -0.77% driven by weak Chinese data and negative investor sentiment driven by rising interest rates globally.
• Housing market: The Australian housing market continued its rebound, as despite higher borrowing costs, property markets remained resilient due to lower supply of housing. Since finding a trough in January 2023, the national index has recovered by 6.6% but remains 1.3% below record highs recorded in April 2022.
• Interest rates and monetary policy: The Reserve Bank of Australia (RBA) kept the target cash rate unchanged over the quarter at 4.1%, as they continue a balancing act of managing inflationary pressures whilst supporting the broader economy.
• Australian dollar: The Australian dollar declined by -3.04% versus the US dollar over the quarter. A falling Australian dollar typically makes Australian exports more attractive, but at the same time increases the costs of imports. 

New Zealand Investment Market Highlights

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

• Equity markets: TThe NZX 50 Index, which tracks the performance of the top 50 companies listed on the New Zealand Stock Exchange, was down over the quarter, falling 5.2%. This was driven by a slump in profits at Fletcher Building and Auckland International airport as well as the impact from higher interest rates on economic growth. 
• Housing market: Banks continued to increase mortgage rates as a result of the increase in government bond yields. Despite this, the housing market remains largely flat overall, with the average home value increasing by just 0.9% in the third quarter to $899,256, according to the latest QV House Price Index. 
• Monetary policy and interest rates: The Reserve Bank of New Zealand (RBNZ) made no changes to the official cash rate, leaving it at 5.5%. The high interest rates that remain in place are starting to have some impact, as inflation in the third quarter came in lower than expected at +5.6%, versus the +5.9% expected. 

Global factors impacting both markets

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

• Global Monetary Policy and interest rates: Central banks around the world have expressed a need to keep interest rates higher for a longer period, given stubborn inflation readings that remain above their targets. In the U.S., the Federal Reserve increased fund target range in July by 0.25% to 5.25%-5.5%. In Europe, the European Central Bank continued to tighten monetary policy and lifted the key rate to 4%, reaching the highest level since the creation of Euro Zone.  
• Commodity prices: These bucked the trend of falling share markets over the quarter, rising significantly on the back of sticky inflation and increasing geopolitical risk. Oil prices in particular rose 28.4% over this period, as both Russia and Saudi Arabia cut oil production. 

Navigating the landscape

Economic growth for most major markets continues to remain resilient, with strong labour markets as well as ongoing consumer strength, particularly in the US. This is despite interest rates around the world remaining high. While inflation rates have shown some moderation, the recent Middle East conflict has increased geopolitical risk further which could potentially disrupt supply chains and find its way into higher inflation. Data monitored by central banks for conducting monetary policy will be closely watched, as investors assess the interplay between economic growth and managing inflation.  

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 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.