Key market movements - March 2021

The first quarter of 2021 saw broadly positive returns for riskier assets supported by the rollout of the Covid-19 vaccines, paired with ongoing supportive fiscal and monetary policy.

The start of the quarter was volatile, with the siege of the US Capitol Building threatening to overshadow or disrupt President Biden’s inauguration on 21 January. However, the 46th US president eventually took office without incident. Biden’s early executive orders included rejoining the Paris Climate Agreement, directing the government to rejoin the World Health Organization, and the American Rescue Plan Act of 2021. The latter was a $1.9 trillion stimulus package to support the US’s recovery from the pandemic and recession, including direct payments to most Americans, funds for vaccine distribution, and other business and healthcare support.

One of the most interesting stories of the quarter was the price action of several small US companies, most notably, GameStop, a brick-and-mortar retailer of video games. An internet forum targeted GameStop’s share price, pushing it up by as much as 30 times in early January. Their aim was to hurt hedge funds that were known to be betting against this firm. The initial price rise had its intended consequence as hedge funds were forced to exit their positions crystalising significant losses. However, as quickly as the price had shot up, momentum quickly turned, and the share price plummeted back towards its earlier range. The net impact on markets was negligible as GameStop, and the companies involved represented very minor weights, but it served as a reminder of the risks in holding concentrated positions. It also highlighted the understated impact that web forums can have on markets and shone a spotlight on the regulator's shortcomings in monitoring these areas.

The first quarter also saw the anniversary of the fastest market correction ever seen - during February and March 2020. The subsequent 12 month returns for many asset classes reflect the sharp subsequent recovery from those lows, providing a forceful reminder of the merits of a disciplined long term investment approach.


International shares

+6.2% (hedged to NZD)

+8.1% (unhedged)

With global vaccination programmes underway, an improving economic outlook along with continued government support has meant improving prospects of companies’ future revenue and profitability. This has been very positive for most share markets. In the US, the flagship S&P 500 Index (total returns in USD), advanced +6.2% for the quarter for a remarkable +56.4% return over the past 12 months.

In Europe, share market performance was also very strong. The MSCI Europe ex UK Index (in local currency) gained +8.4% through the quarter and, during March, this index surpassed its highest pre-crisis level. The MSCI Europe ex UK Index gained +40.0% over the last 12 months.

British equities were also strong, although they did not increase at the same rate as their neighbours. In GBP terms, the FTSE 100 advanced +3.9% for the quarter and +18.4% for the last 12 months. Japanese equities were among the best in developed markets for the quarter, as a relatively weak Japanese yen enhanced the revenue of exporters. The MSCI Japan Index jumped +8.9% for the quarter for a +43.5% return over the last 12 months.

Small capitalisation companies generally outperformed larger companies in the quarter and also posted higher returns over the last 12 months. Economically sensitive industries such as energy, industrials and financials were the best performing as the prospect of strong economic growth drove their prices higher. Defensive industries such as utilities (e.g. power companies) and consumer staples (e.g. food producers) are typically less volatile and advanced at a slower rate. Healthcare and information technology – sectors that had thrived through the pandemic – lagged through the quarter, although information technology remains near the top over the last 12 months.

The New Zealand dollar was generally weak versus foreign currencies and this meant that unhedged foreign assets outperformed. In New Zealand dollar terms, the MSCI World ex Australia Index delivered a quarterly return of +6.2% on a hedged basis and +8.1% unhedged. The rolling 12 month return for the New Zealand dollar hedged index was +49.7%, while the unhedged index gained ‘just’ +31.4%.

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


Emerging Markets shares


Emerging market equities generated gains as well, albeit less than developed markets. The vaccine roll out in these nations has been slower than in developed nations, and high infection rates again meant social restrictions in some countries. Oil heavy economies such as Russia and Saudi Arabia were among the best performing nations as renewed global demand for oil pushed prices up. Taiwan was also strong, led by large semiconductor producers that produced good results.

Korea and India produced small gains while China struggled in the face of ongoing US-China tensions, even under the new US administration.

In unhedged New Zealand dollar terms, the MSCI Emerging Markets Index produced a quarterly return of +5.4%, for a +35.8% return over the last 12 months.

Source: MSCI Emerging Markets Index (gross div.)


New Zealand shares


Although the Royal New Zealand Yacht Squadron proved to be world beaters, domestic equities took on a little water in the first quarter of 2021. It was a handful of disappointing results from the larger firms and the announcement of a 1% drop in our GDP during the last quarter of 2020 (worse than expectations) that knocked us right off our foils. In aggregate, the broad S&P/NXZ 50 Index declined -3.9%.

Dairy companies Synlait Milk and a2 Milk were among the poorest performers as multiple earnings downgrades soured investor demand. Synlait’s largest client is a2 Milk, and a2 has seen demand for their infant powder dry up through the latter half of last year, negatively impacting both firms’ reported profit expectations.

Meridian and Contact Energy also had volatile quarters, and each ended down more than -20%. Both had enjoyed a strong end to 2020 as high demand for these clean energy companies from international investors pushed their prices up. However, during the first quarter, Standard and Poor's signalled the expansion of their global clean energy index from 30 holdings up to 100, slashing Meridian and Contact’s weightings. Investors tracking this index reduced their holdings in both companies which pushed each firm’s price well down.

At the other end of the spectrum, Fletcher Building enjoyed another strong quarter, as did The Warehouse Group, which reported a record profit late in the quarter.

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


Australian shares


Australian share market returns were strong over the quarter. The S&P/ASX 100 (the largest 100 companies in the Australian market) returned +4.5% in Australian dollar terms, while the S&P/ASX Small Ordinaries Index (the companies ranked 101 to 300 in the Australian share market) delivered +2.1%. Over the last 12 months, small capitalisation companies have been very strong, with the S&P/ASX Small Ordinaries Index up +52.1% versus +36.8% for the top 100 companies.

The strongest performing sector in Australia was financials, where Westpac led the rally on the back of strong profit reporting through the quarter. The market sees an improving outlook for the banking sector with a strong economy and a thriving housing market, in particular, helping profit projections.

Heavyweight miners BHP Group and Rio Tinto posted small gains, however many of the mid cap gold miners posted losses as the price of gold fell during the quarter, harming these firms’ prospects.

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

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


International fixed interest


As mentioned earlier, longer term yields broadly rose as the market priced in prospects of an improving economic growth outlook. As was the catalyst in equity markets, the vaccine rollout and continued government support drove expectations, and the market began to price in interest rate increases earlier than was the consensus at the start of the year.

The US 10 year yield – the yardstick for global yields – increased to 1.74%, effectively returning it to pre-Covid levels. These yields are now at the lower end of the broad range observed in the decade following the GFC. Many developed market government yields saw similar moves, with the 0.83% increase in the US being matched in Australia with the UK not far behind. Yields in the European Union also rose, although by smaller magnitudes. The Japanese 10 year yield was relatively unchanged.

When bond yields are relatively stable, bond investors receive the bulk of their return from the bond yield and from something called the ‘roll down’ return, which is a valuation benefit that generally accrues to investors as the bonds they hold move closer to maturity. At the start of the period, both of these sources of return were minimal as yields were low and curves were relatively flat. In the first quarter, the prices of bonds fell as bond yields increased sharply, and the impact of the lower bond prices was far larger than the positive combined yield or roll down benefits.

Longer duration bonds were hit the hardest, while corporate bonds performed slightly better than government bonds. The FTSE World Government Bond Index 1-5 Years (hedged to NZD) declined -0.4%, while the broader Bloomberg Barclays Global Aggregate Bond Index (hedged to NZD) returned -2.5% for the quarter. These declines are among the worst seen in this asset class since the turn of the century. However, the impact of Covid-19 on both equity and bond markets has generated some short term results (both good and bad) which have been far from normal. When we look at the annualised performance of bonds over longer time periods, we quickly find returns that are a lot closer to long term expected averages, such as the Bloomberg Barclays Global Aggregate Bond Index (hedged to NZD), which has returned +4.0% pa over the three years to end March of 2021.

It should also be noted that although the increase in yields contributed to a negative quarter for bonds, it also serves to increase the expected return of these same assets going forward.

The final silver lining within this period of higher volatility in bond markets is the diversification benefits we have seen in portfolios. This negative performance on fixed income assets occurred alongside another very strong performance from the riskier equities. The flipside of this was exhibited during the initial Covid-19 crisis early last year, where high quality fixed income assets benefitted (at that time) from a drop in yields when equities were delivering large losses. This is precisely the sort of diversification benefit we expect from pairing these different asset classes together in portfolios; when one does poorly, the other will often perform well and help carry the portfolio.

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


New Zealand fixed interest


Yields in New Zealand followed the global trend and spiked, with the New Zealand 10 year yield closing the quarter at 1.84%, 0.82% above its starting point. The impact was negative on performance, although generally less so here than overseas. This is because our market has a relatively shorter average time until maturity, so the yield changes were less amplified.

Government bonds generally outperformed credit securities, and shorter maturity bonds that have less price sensitivity to rising interest rates outperformed longer maturity bonds, but generally, all parts of this asset class posted losses.

The S&P/NZX A-Grade Corporate Bond Index declined -2.1% over the quarter, and the rolling 12 month return has been +1.9%. Longer term performance remains robust, with both the three and five year annualised average coming in at +4.0%, while the 10 year return is +5.0% per annum.

The longer duration but higher quality S&P/NZX NZ Government Bond Index declined -3.4% for the quarter and has retreated -1.6% over the preceding 12 months.

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



Table 1: Asset class returns to 31 March 2021

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 - March 2021' or click here to view the full newsletter in PDF.



Information contained in this newsletter does not constitute personalised financial advice because it does not take into account your individual circumstances or objectives. You should carefully consider whether the Synergy investment portfolios are appropriate for you, read the applicable offer documentation, and seek appropriate professional advice before making any investment decision. The information in this newsletter is of a general nature only. Investors should be aware that the future performance of the Synergy investment portfolios may differ from historic performance. Details are correct as at the date of preparation and are subject to change. The investment objectives and strategies of the Synergy investment portfolios may change in the future.

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