What's been driving investment markets?
The third quarter of 2024 delivered another strong performance for most asset classes, continuing the positive momentum from earlier in the year. Global equities rose by 4.8% (NZD-hedged) in the quarter, bouncing back after a brief scare in August. As interest rates started to decline, interest-rate sensitive sectors like small-caps and listed infrastructure outperformed. However, the global market outlook remains uncertain, with risks including Middle Eastern conflict escalation and the upcoming US elections.
Market leadership shifted during the quarter, with the technology sector, previously driven by the AI boom, taking a backseat. Small-cap stocks led the charge, with the Russell 2000 index climbing 9.3%, while the tech-heavy Nasdaq 100 posted a more modest gain of 2.1%. Smaller companies tend to benefit more from lower interest rates, as they often rely heavily on borrowing to fuel growth. Likewise, infrastructure stocks performed strongly, gaining 13.5% due to declining bond yields and rising demand for stable, long-term cash flows.
Central bank policy impacted market sentiment during the quarter. The Federal Reserve made a notable move by cutting rates by 50 basis points in September, the first reduction in four years. This marked a shift in priorities, with the key concern moving from inflation to slowing economic growth. Closer to home, the Reserve Bank of New Zealand cut the Official Cash Rate (OCR) by 25 basis points in August. Bond yields fell in response, helping both the Global Aggregate Bond Index (NZD-hedged) and the NZ Bond Index post positive returns for the quarter, gaining 4.2% and 3.9%, respectively.
New Zealand’s economy continued to struggle, with GDP contracting by 0.2% in the June quarter, and performing even worse on a per capita basis, falling by 0.5%. Despite this, business confidence has rebounded following the OCR cut, with August marking the highest level of confidence in a decade, and September rising further by an additional 10 points. The NZ stock index (NZX50) also posted positive returns for the quarter, gaining 6.0%, helped by falling interest rates.
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DISCLAIMER
This information is provided in a general nature only and should not be construed as or relied on as financial advice. This is not a recommendation to invest in a particular financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any investment decisions.
Past performance is not a reliable indicator of future performance. The value of your investment may go up and down.