Key market movements - December 2024

International shares

+2.0% (hedged to NZD)

+13.6% (unhedged)

Developed market equities delivered muted returns in the fourth quarter of 2024, with escalating tensions in the Middle East and Ukraine, political upheaval in Germany and France, and uncertainty in the US economy among the risks uppermost in investors’ minds.

The US market continued its strong performance, with the S&P 500 Index up over +5% by early December in US dollar terms, before the Federal Reserve suggested that fewer rate cuts may be needed in 2025, leading the market to give up a large portion of the quarter’s gains. 

Eurozone markets were broadly down, with the MSCI Europe Index down -2.8% in local currency terms over the quarter. Political turmoil in Germany and France increased uncertainty at a time when the European Union is trying to adapt to a world where they cannot rely on cheap Russian energy and export led growth.

The UK FTSE 100 Index had a volatile path to a small decline (in British pounds) over the quarter. The UK continues to battle low growth and ‘sticky’ inflation, which is a combination that traditional monetary policy is poorly equipped to fix in unison. 

The Japanese share market had a solid end to 2024 with the Nikkei 225 Index up over +5% for the quarter (in Japanese yen). The market environment in Japan has experienced consumption growth and increased investment driving economic growth, while inflation declines toward target levels. 

Against most major currencies the New Zealand dollar was weaker through the quarter, which meant higher reported returns for investors holding unhedged foreign assets. In particular, the NZ dollar depreciated by -13.5% against the US dollar over this period.

Source: MSCI World ex-Australia Index (net div.)

 

Emerging markets shares

+4.6%

Emerging markets shares generally experienced weak fourth quarter returns, with the MSCI Emerging Markets Index (gross) down by -4.2% in local currency terms. However, due to the significant weakness of the New Zealand dollar, unhedged New Zealand investors experienced a useful gain of +4.6%.

Underlying market softness was driven by continued economic weakness in China and concerns over US President Trump’s trade policies. Emerging economies rely heavily on trade and foreign direct investment, and Trump’s protectionist policies would, if enacted, aim to increase investment in the US by using tariffs to increase the price of other countries’ exports. This could lead to a degree of product substitution and decreased demand for emerging market exports.

After delivering a strong third quarter driven by the announcement of Chinese economic stimulus, Chinese shares performed poorly in the fourth quarter. Markets were disappointed by the lack of follow through in respect of the previously announced stimulus package, and are concerned that the aforementioned (potential) US tariffs would put more pressure on an already weak economy. 

While a number of smaller emerging markets - including the Czech Republic, Kuwait, Taiwan and UAE - managed to deliver positive returns, it was negative returns of the largest index constituents (China, India, Brazil and Korea) which dragged the index lower. Taiwan delivered a solid return for the quarter, driven by the ongoing positive sentiment around artificial intelligence demand.

Taiwan led this group for the year as well, and with China also advancing the emerging markets shares asset class gained +13.7% in local currency returns. This was further enhanced to +22.1% for New Zealand investors due to the relatively weak New Zealand dollar.

Source: MSCI Emerging Markets Index (gross div.)

 

New Zealand shares

+5.6%

The New Zealand share market, as measured by the S&P/NZX 50 Index, extended its strong third quarter result by posting another tidy gain to end the year. 

The New Zealand economy showed signs of further weakness in the lead up to Christmas, with unemployment climbing to 4.8% and retail sales volumes falling slightly, reflecting the ongoing pressure on household budgets. 

With inflation seemingly now under control, the Reserve Bank ramped up its aggressive interest rate-cutting cycle to stimulate the economy, moving the OCR from 5.25% to 4.25% over the course of the fourth quarter, with further rate reductions expected in 2025. 

With the beginning of the long-awaited easing in monetary conditions in New Zealand, several small consumer cyclical and healthcare firms delivered strong double digit returns over the quarter. However, of the more index-relevant businesses, it was Auckland Airport (+16.5%), Contact Energy (+16.3%) and Fisher and Paykel Healthcare (+11.0%) which were leading the charge. 

Interest in Auckland Airport shares increased as it was confirmed the Auckland Council sold its remaining 9.71% stake to UBS at a price of $8.08, propelling the shares back to their highest price since April.

On the other side of the ledger, Mercury NZ Ltd disappointed by delivering a -9.3% return over the last three months.

After lagging other regions for most of the year, this quarter helped the New Zealand shares post a robust +12.2% return for the 2024 calendar year.

Source: S&P/NZX 50 Index (gross with imputation credits)

 

Australian shares

+0.8%

The Australian share market was slightly weaker in the final quarter, with the S&P/ASX 200 Total Return Index falling -0.8% (in Australian dollars). Weakness was evident in materials prices, affected by China’s slowdown and in soft commodity prices, as relatively high interest rates continued to restrict consumer demand. 

The Reserve Bank of Australia extended its interest rate pause through the fourth quarter, keeping the Australian cash rate at 4.35%. It continues to state it needs more time, and a decrease in domestic demand, to gain confidence that inflation is sustainably within the target range of 2-3% (the September measure was 2.8%, the first time it has dipped below 3% since 2021). For the moment, the economic weakening that the Reserve Bank needs to see has stalled, with unemployment holding steady at 4% and wages continuing to rise. 

Continued uncertainty around China’s economic stimulus package and weaker iron ore prices over the final quarter contributed to lacklustre results for materials giants BHP (-13.9%) and Rio Tinto (-9.0%). 

Offsetting these was a generally strong quarter for the equally important financials sector, with the big banks all contributing positively. National Australia Bank (+1.6%), Westpac Banking Corporation (+4.3%) and Commonwealth Bank of Australia (+13.2%) all enjoyed the continuation of relatively high interest rates in Australia, which was underpinned by the resilience demonstrated by the Australian economy overall.

With the Australian dollar slightly stronger against the New Zealand dollar over the quarter, the reported returns to New Zealand investors were marginally higher than the reported index returns.

Source: S&P/ASX 200 Index (total return)

 

International fixed interest

+0.0%

The fourth quarter of 2024 saw yields in fixed interest markets exhibit considerable volatility, primarily driven by geopolitical tensions, central bank actions and fluctuating inflation rates. 

In the US, treasury bond prices fell (i.e. yields rose) amid concerns over the potential inflationary impact of trade policies arising from a Republican victory in the presidential election. 

While the US Federal Reserve delivered further rate cuts throughout the fourth quarter, it also adopted a more ‘hawkish’ tone, indicating that expected rate cuts in 2025 may now reduce from four to two. Because the US economy has shown a great deal of resilience, there is little need for the Federal Reserve to cut rates faster, especially if the potential imposition of new trade tariffs were to reignite fears about rising inflation. 

The European Central Bank cut key European rates twice in the fourth quarter, the Bank of Japan maintained a steady 0.25% interest rate, while the Bank of England cut once in November to 4.75%.

The US 10-year bond yield rose from 3.79% to 4.57%, with the two year bond yield moving from 3.65% to 4.24%, maintaining a positive yield premium for longer duration bonds. Germany’s 10-year bond yield lifted from 2.13% to 2.36%, while the UK 10-year yield moved from 4.01% to 4.57%. The FTSE World Government Bond Index 1-5 Years (hedged to NZD) was flat over the quarter, returning +0.0%, while the broader Bloomberg Global Aggregate Bond Index (hedged to NZD) was down -1.2%.  

Source: FTSE World Government Bond Index 1-5 Years (hedged to NZD)

 

New Zealand fixed interest

+1.1%

The Reserve Bank of New Zealand (RBNZ) cut New Zealand’s Official Cash Rate by 0.50% on both 9 October and 27 November, reducing the rate from 5.25% to 4.25% heading into 2025. 

Short term inflation expectations are now below 3% and economic indicators broadly suggest the New Zealand economy is continuing to slow, with weaker housing data, decreased investment (as measured by building consents) and persistently lower retail sales all painting a picture of a softening economy. The question now for the RBNZ is how quickly to cut rates to ensure that the economy doesn’t cool too far. 

On the back of the general trend of rising bond yields internationally, the New Zealand 10-year bond yield increased from 4.28% to 4.61% over the quarter. 

The S&P/NZX A-Grade Corporate Bond Index gained +1.1% for the quarter, while the longer duration but higher quality S&P/NZX NZ Government Bond Index gained +0.3%. 

Source: S&P/NZX A-Grade Corporate Bond Index

 

Table 1: Investment class returns to 31 December 2024

Investment class	Index name	3 months	1 year	3 years	5 years	10 years
International shares	MSCI World ex Australia Index (net div., hedged to NZD)	+2.0%	+21.6%	+7.1%	+11.2%	+10.8%
	MSCI World ex Australia Index (net div.)	+13.6%	+34.5%	+13.8%	+15.5%	+13.8%
Emerging markets shares	MSCI Emerging Markets Index (gross div.)	+4.6%	+22.1%	+5.4%	+6.0%	+7.6%
New Zealand shares	S&P/NZX 50 Index (gross with imputation credits)	+5.6%	+12.2%	+1.0%	+3.4%	+10.0%
Australian shares		+0.8%	+14.4%	+8.9%	+9.3%	+9.1%
International fixed interest	FTSE World Government Bond Index 1-5 Years (hedged to NZD)	+0.0%	+4.1%	+1.4%	+1.3%	+2.2%
	Bloomberg Global Aggregate Bond Index (hedged to NZD)	-1.2%	+3.0%	-1.0%	+0.2%	+2.4%
New Zealand fixed interest	S&P/NZX A-Grade Corporate Bond Index	+1.1%	+6.8%	+2.9%	+1.9%	+3.5%
New Zealand cash	New Zealand One-Month Bank Bill Yields Index	+1.1%	+5.4%	+4.5%	+2.8%	+2.5%

Unless otherwise specified, all returns are expressed in NZD. We assume Australian shares and emerging markets shares are invested on an unhedged basis, and therefore reported returns from these asset classes are susceptible to movement in the value of the NZD. Index returns are before all costs and tax. Returns are annualised for time periods greater than one year.