The third quarter of 2026 showed how resilient global economic growth and strong corporate earnings can support investment markets even during periods of heightened geopolitical tension and rising inflation. While conflict in the Middle East and rising energy costs dominated the headlines, steady business activity helped support well-diversified investment portfolios.
New Zealand’s economy, measured by Gross Domestic Product (GDP), grew +1.7% over the year ended June 2026, compared with the year ended June 2025. Local business activity expanded in June but then declined in July and August. New Zealand’s unemployment rate rose slightly to 5.6%. Consumer prices rose +4.1% over the year ending Q2.
On 3 September 2026, the Reserve Bank raised the Official Cash Rate by 0.25 percentage points to 2.75%.
Despite higher borrowing costs, local shares gained ground. The main New Zealand share index (NZX 50) returned +1.6%. New Zealand government bonds returned -2.4% as interest rates rose. And the New Zealand Dollar weakened by -0.7% against the US Dollar over the quarter.
Beyond our shores, energy prices and central bank decisions were the big drivers of global markets. Escalating Middle East tensions disrupted energy supplies, driving Brent crude oil prices up 40.2% in NZD in Q3 to around USD 100 per barrel.
To counter energy-driven inflation, many central banks adopted a firm, inflation-fighting stance (often described as “hawkish”) by raising their official interest rates. In September, major central banks each raised rates by a quarter of a percentage point (0.25%): the US Federal Reserve raised its benchmark rate to 4.00%, the European Central Bank to 2.50%, the Reserve Bank of Australia to 4.60%, and the Bank of Japan to 1.25%.
International shares rewarded patient investors, supported by solid profits in technology and energy. The global share benchmark (MSCI All Country World Index) rose +2.5% in NZD. Value shares (companies that look cheap relative to their earnings) returned +4.8% in NZD, ahead of growth shares (companies expected to grow their earnings faster than average) at +0.8%.
In the United States, the economy grew at an annualised rate of 1.5% in the second quarter, while unemployment fell to 4.1% in August. US shares (S&P 500) reached record highs, returning +2.3% in USD, while tech-focused NASDAQ shares gained +2.6% in USD.
Japanese shares (TOPIX) returned +3.8% in JPY, driven by solid earnings growth. In contrast, Chinese shares (-11.7% in CNY) and South Korean shares (-19.3% in KRW) declined following a mid-quarter slowdown in technology chip manufacturing.
Global bond prices fell as investors adjusted to interest rates staying higher for longer. The Bloomberg Global Aggregate bond index returned -1.7% in NZD. Long-term borrowing costs reached multi-decade highs as governments borrowed heavily and tech companies borrowed to build artificial intelligence (AI) infrastructure.
Market adjustments and shifting interest rates are a normal part of the economic cycle. While rising interest rates create short-term price pressure on bonds, they significantly improve future income yields for fixed-interest investors.
Our funds remain thoughtfully balanced across global shares, quality bonds, and local assets. By maintaining a disciplined approach and focusing on long-term wealth creation rather than short-term headlines, we aim to keep our clients well positioned to achieve their financial goals.