Key market movements - December 2020

In a remarkable achievement by medical researchers, several Covid-19 vaccines displayed extremely positive trial results during the final quarter of 2020. These results were both sooner than expected, and with high efficacy rates, which fuelled expectations of a quicker return to social and economic normality. In December, initial vaccines were approved for international distribution and the global inoculation against Covid-19 commenced.

This was very positive for markets, with expectations of an increase in near term economic output and revenues driving share prices higher almost across the board, even as a ‘second wave’ of Covid was causing increasing infection and mortality rates around the world.

Overall returns through the quarter were generally positive for riskier assets, and many share markets posted significant gains to close out an unforgettable year with solid returns. This is an outcome few of us would have dared dream of in late March.


International shares

+11.7% (hedged to NZD)

+4.6% (unhedged)

The final quarter of 2020 started similar to the rest of the year, with high levels of uncertainty resulting in heightened volatility for risky assets.

It was largely anticipated that Joe Biden would prevail in the US presidential election, yet a risk of a disorderly transition of power weighed on the economic outlook. This also led to delays in finalising US government support packages which stifled investor sentiment as October drew to a close.

The November election delivered a comfortable margin of victory (eventually) for Biden, which was followed closely by positive vaccine news and the finalisation of US government support packages in late December. This triple dose of good news “Trumped” the incumbent’s claims of election fraud, driving very strong share market performance through November and December pushing all major developed markets equity indices to strongly positive returns for the quarter. The S&P 500 Index (total returns in USD) advanced +12.1% for the quarter, closing out a remarkable +18.4% return for the year.

In Europe, share market performance was also very strong. This was largely due to the positive vaccine news, the approval of further recovery packages by the European Union, and the finalisation of the Brexit trade deal in late December. For the quarter, the MSCI Europe ex UK Index (in local currency) gained +10.2%, dragging the 2020 return into the black at +2.1%.

The same themes drove the British FTSE 100 index up by +10.9% to close the year down -11.5% (in GBP terms). Japanese shares also participated in the rally with the MSCI Japan Index advancing +12.8% for the quarter to lift its annual return back into the positives.

The New Zealand dollar was generally strong versus foreign currencies and this meant that hedged foreign assets outperformed. In New Zealand dollar terms, the MSCI World ex Australia Index delivered a quarterly return of +11.7% on a hedged basis and +4.6% unhedged. For the complete 2020 calendar year the New Zealand dollar hedged index ended up +11.4% and the unhedged index up +8.6%.

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


Emerging Markets shares


Emerging market shares generated their strongest quarterly return in over a decade, with Korea and Brazil both notable outperformers. Conversely, Egypt - where new daily Covid cases accelerated, posted the lone negative return across the entire emerging markets region. Overall, the MSCI Emerging Markets Index (gross return in USD) advanced +19.8% over the quarter to return +18.7% for the year.

Positive vaccine news lifted hopes for a global economic recovery in 2021. This helped bolster commodity prices, which was generally very supportive for emerging market net exporters. US dollar weakness during the quarter was also a positive, as the debt servicing burden for many emerging market nations holding USD denominated debts was reduced.  

Regional heavyweight, China, produced a solid positive return for the quarter, but lagged the regional average. The launch of an anti-trust investigation into Alibaba and a further escalation in US-China tensions both dragged on sentiment.

In unhedged New Zealand dollar terms, the MSCI Emerging Markets Index produced a quarterly return of +10.1%, for a +11.0% calendar year return.

Source: MSCI Emerging Markets Index (gross div.)


New Zealand shares


The New Zealand stock exchange rode the fourth quarter surge in global share markets by delivering an excellent +11.5% over the quarter as the local index posted a +14.6% gain for the year; a result scarcely believable nine months earlier.  

During December, New Zealand’s GDP for the third quarter of the year was released. The reported growth rate of +14.0% represented the largest quarterly rise in growth on record, confirming the strong recovery of the domestic economy post Covid lockdowns. This strong economic performance was reflected in domestic business confidence, with the ANZ business survey indicating a very positive outlook for profit expansion and investment intentions in the year ahead.

This improving sentiment added to a growing sense that a ‘return to normality’ might be possible some time in 2021, and saw a number local firms' share prices jump appreciably in the final quarter of the year.

Notable firms amongst the better performers during the quarter were Fletcher Building (+53.2%), Mainfreight (+51.7%) and Meridian Energy (+49.9%), with all generally citing improving trading conditions and profitability expectations.

Towards the other end of the spectrum, in mid-December the a2 Milk Company announced a downward revision to their August guidance, now stating that their full 2021 financial year revenue was forecast to be $350m to $500m lower than previously advised. This resulted in a swift -22.1% daily price decline on 18 December and led the firm to significantly underperform the overall market, posting a -21.3% return for the fourth quarter and a disappointing -19.6% for the full year.

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


Australian shares


Australian share market returns were very strong and remarkably evenly dispersed over the quarter. The large capitalisation S&P/ASX 100 returned +13.78% in Australian dollar terms, while the small capitalisation S&P/ASX Small Ordinaries Index delivered +13.83%. Over the full year, small outperformed large by a sizable 8.41%.

Commodity prices generally experienced a resurgence in the final quarter of 2020, and this was very positive for materials and resources companies in iron ore. Chinese economic stimulus to combat Covid impacts, coinciding with an interruption in Brazilian supply, drove the iron ore price up 27.5% in the last three months of the year. While this helped Rio Tinto and BHP advance 20.7% and 19.2% respectively for the quarter, Fortescue Metals delivered by far the greatest gains in the sector, up 43.7% for the quarter and 151.0% for the year.

In a quarter of strong returns across a range of sectors, some of the previous sector laggards – namely financials, real estate and energy - finally found some strong support. Information technology, the sector that appeared to benefit most from Covid, also finished the year strongly. For the full 12 months, it delivered more than triple the return of the next best performing Australian market sector.

Returns to unhedged New Zealand investors were slightly reduced by a small appreciation in the New Zealand dollar over the quarter.

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


International fixed interest


Government bond yields diverged quite markedly during the quarter.

The US 10 year yield was 0.23% higher, ending the year at 0.91%.  Investors appeared to be buoyed by the curtain closing on an erratic Trump administration and looking forward to a fresh start - and the prospect of a significant new spending programme – under President-elect Biden. 

German yields were flat while Italian and Spanish 10-year yields saw declines as the European Central Bank increased quantitative easing.  Across the English Channel, the UK 10-year yield was little changed as growing vaccine optimism was tempered by Brexit uncertainty (i.e. what the trade deal really means for the UK) and new lockdown measures.

Corporate bonds also enjoyed a good quarter, generally outperforming government bonds, with both investment grade and lower credit quality bonds delivering strong positive total returns.

The FTSE World Government Bond Index 1-5 Years (hedged to NZD) posted a +0.2% gain to take its 12-month return to +3.2%, while the broader Bloomberg Barclays Global Aggregate Bond Index (hedged to NZD) returned +0.8% for the quarter for a +5.4% return in 2020.

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


New Zealand fixed interest


Domestic bond returns were the only negative asset class over the fourth quarter as stronger economic data and improving investor sentiment brought an abrupt end to the trend of falling interest rates.

The sharpest rise in yields occurred in November driven by a combination of factors. New Zealand economic data had mostly been outperforming expectations, with sectors such as housing, employment, and exports all surprisingly robust. However, this had largely been ignored until the news of viable Covid-19 vaccines hit global headlines in October and November. Further upward pressure was added with the government’s renewed focus on house price inflation and a ‘walking-back’ in the rate cut rhetoric from the Reserve Bank at their November meeting, which resulted in a jump in domestic yields.

By the end of the quarter, the 10-year New Zealand government bond yield finished 0.49% higher at 1.02%. It was a poor month overall for domestic fixed interest strategies.

Although credit securities generally outperformed government bonds, the rise in local bond yields was negative for bond prices and resulted in a -1.0% return for the S&P/NZX A-Grade Corporate Bond Index over the quarter, although the full year return was still a healthy +5.4%. The longer duration, but higher quality S&P/NZX NZ Government Bond Index declined -2.8% for the quarter while also delivering +5.4% for the year.

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



Table 1: Asset class returns to 31 December 2020

Asset Class Index Name 3 months 1 year 3 years 5 years 10 years

New Zealand shares

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






Australian shares

S&P/ASX 200 Index (total return)






International shares

MSCI World ex Australia Index
(net div., hedged to NZD)






MSCI World ex Australia Index (net div.)






Emerging markets shares

MSCI Emerging Markets Index (gross div.)






New Zealand fixed interest

S&P/NZX A-Grade Corporate Bond Index






International fixed interest

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






New Zealand cash

New Zealand One-Month Bank Bill Yields Index






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 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.


For a detailed review of the market commentary for the quarter, see ‘Market commentary - December 2020' or click here to view the full newsletter in PDF.



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