The first quarter of 2026 has been a period of significant movement and complexity in global markets. We have seen a shift in the geopolitical landscape, particularly due to the conflict in the Middle East, which has impacted energy prices and investor sentiment.

While these events have introduced volatility, our focus remains on navigating these conditions to protect and grow your investment.

Q1 2026 Market Update | 3-minute overview
Hear from Aurora Capital Chief Investment Officer, Sean Henaghan, as he shares his perspective on the key themes shaping markets this quarter.

Global Market Overview

The primary driver of market activity this quarter was the escalation of tensions in the Middle East. This conflict disrupted oil and gas supplies, notably due to the closure of the Strait of Hormuz. Consequently, energy prices soared, with Brent oil rising more than 70% (in NZD).

Beyond energy, the quarter was marked by a major shift in U.S. trade policy. The U.S. Supreme Court ruled that certain “reciprocal” tariffs were unlawful, leading the administration to implement a flat 10% tariff on all imports.

These developments, combined with persistent inflation concerns, caused both stocks and bonds to decline globally as investors adjusted to a higher interest rate and lower growth environment.

Central Bank Activity

Central banks globally maintained a cautious stance. Most major institutions held their policy interest rates steady this quarter, except for the Reserve Bank of Australia, which raised its rate to 4.10%.

The U.S. Federal Reserve kept rates unchanged but signalled just one possible rate cut this year.

Meanwhile, the European Central Bank and the Bank of England adopted a more “hawkish” tone, indicating they are prepared to raise rates if inflation, fuelled by rising energy costs, remains high.

Equity and Bond Performance

The quarter saw a notable rotation in the stock market. Investors moved away from the “mega-cap” technology giants that dominated the last few years, leading to a divide in performance:

• Value vs. Growth: Global “value” stocks (companies considered undervalued) rose 2.1%, while global “growth” stocks (including tech) declined by 7.7% (both in NZD).
• U.S. markets: The S&P 500 fell 4.3% (in USD), largely due to concerns over AI-related spending and its impact on profitability.
• International markets: Japan was a bright spot, with stocks gaining 3.6% (in Yen) thanks to a weak Yen and the prospect of growth-boosting stimulus from the newly elected government. Conversely, European and Chinese markets faced headwinds from energy prices and geopolitical uncertainty.

In the bond market, volatility reigned. As energy prices pushed inflation expectations higher, government bonds declined.

Short-term bonds were particularly affected as markets shifted from expecting rate cuts to preparing for possible increases.

New Zealand Economy and Markets

Closer to home, the New Zealand market and economy continued to reflect ongoing weakness.

• Economic Growth: Real year-on-year GDP growth for Q4 2025 came in at 1.3%, slightly below expectations.
• Inflation: Consumer price inflation (CPI) for the same period was 0.6%, slightly higher than forecasted.
• Retail Sector: We observed a slowdown in retail sales growth, suggesting that higher living costs are impacting household spending.
• Local Markets: The NZ stock index followed the global trend, falling 4.7% over the quarter. Similarly, New Zealand government bonds declined by around 0.7%. The New Zealand dollar also weakened by 0.8% against a strengthening U.S. dollar.

Our Outlook

While the start of 2026 has been volatile, periods like this are a normal part of long-term investing. We are monitoring the situation in the Middle East and the evolving tariff landscape closely, ensuring our funds are positioned to manage short-term shocks while capturing long-term performance.