The Delta Blues
- We hope you are all keeping safe & well as we find ourselves back in level 4. We have done this before, and we can do it again!
- As well as the challenges of a snap lockdown, today has been one of the busiest days of the year for both companies reporting and the macro-economic calendar.
- Today the New Zealand equity market bucked the trend from markets overnight with equity prices recovering after strong local company results and AGM updates positively impacting some of our largest companies.
- Fixed income and currency markets, however, were more affected by the COVID-19 outbreak news, with the Reserve Bank of New Zealand (RBNZ) displaying considerable risk awareness in deciding not to proceed with a rate hike today that it was widely expected to make.
Harbour Outlook: Economic strength brings RBNZ into play
- The MSCI All Country World (global shares) Index rose 0.6% (in USD) in June. The Australian market gained 1.1% (in AUD) while the New Zealand market fell 0.5% over the month.
- The US Earnings season has been strong with, at the time of writing, 443 companies reporting earnings and 377 companies (85%) delivering earnings above consensus expectations.
- Concerns around the COVID-19 delta variant and associated mobility restrictions has contributed to some forecasters reducing global growth expectations.
- In contrast, the strength of the New Zealand economy has seen the Reserve Bank of New Zealand (RBNZ) signal imminent rate hikes, seeing rates out to five years increase over the month.
Social Spotlight II: Human Capital Management (Including video)
- Health and safety, diversity and inequality are key issues related to the United Nation’s Sustainable Development Goals.
- In our second of three articles following our research project, we summarise our findings on health & safety, gender diversity and income inequality.
- We found a lack of injury frequency disclosures, with less than half the companies in our sample reporting on recordable injuries and lost time metrics.
- Gender diversity across total employees is broadly equal, but there is significant room to improve female representation in senior roles.
- Significant variance exists between sectors on our measure of income inequality.
Sustainability-Linked Bonds: Video
In relation to our recent Harbour Navigator, Manager of ESG Research, Jorge Waayman sits down with Senior Credit Analyst, Simon Pannett to discuss sustainability-linked bonds and what that means.
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Mortgage rates rise, but households can manage.
- ASB increased all its fixed mortgage rates yesterday, including the highly popular one year rate by 0.36% to 2.55%. We expect other major banks to follow, likely marking the end of a multi-year decline in New Zealand mortgage rates.
- Many households will soon be exposed to these rates as almost 80% of outstanding mortgages are either floating (12%) or fixed for less than one year (65%).
- Further increases in mortgage rates are likely as the economic expansion supports a removal of monetary policy stimulus and higher bank funding costs.
- We think households in aggregate can manage higher rates. Debt servicing costs are historically low and there is some evidence that mortgage holders are currently paying off a greater proportion of principal, implying a buffer to rising rates.
Harbour Outlook: Expansion accelerates taper talk
- The MSCI All Country World (global shares) Index rose 1.2% (in USD) in June. New Zealand and Australian shares (in AUD) also performed strongly, returning 2.8% and 2.3%.
- Bonds delivered a small gain, with the Bloomberg NZ Bond Composite 0+Yr Index returning 0.12% in June. The fall in 10-year government bond yields in New Zealand was muted (falling just 0.03%) relative to the US, who saw their 10-year Treasury yield fall 0.13% over the month. Globally yield curves flattened in June.
- The market has sided with policy makers in deciding that inflation is transitory, for now. US headline inflation is currently 5% year on year, surveys suggest prices paid by firms are at historic highs and consumer inflation expectations have started to increase.
Harbour Investment Perspectives: Into an expansion
We are six months into the calendar year and investors have enjoyed resilient markets in the first half of 2021; a continuation of the strong recovery from the immediate Covid-19 impacted crisis. Andrew Bascand, our Managing Director, has penned this letter to clients framing the current environment, thanking our stakeholders for their support, and providing some thinking about the period ahead of us.
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Back to Core Banking
A virtual tour through Australian banking issues
- More tailwinds for the banking sector
- Medium term, the banking sector faces pressure to continue to invest heavily in their digital consumer platforms
- Differentiated strategies are appearing as banks rebuild their client focus
Accelerating down the sustainability road(map)
- The inaugural Australasian sustainability-linked bond was issued by Wesfarmers last week
- Sustainability-linked borrowing links a company’s interest payments to measurable sustainability targets
- Missing the targets would result in tangibly higher interest costs
Harbour’s Environmental, Social and Governance policy
Harbour’s Environmental, Social and Governance (ESG) policy encompasses our approach to responsible investing including integration into our investment decision making process, stewardship practices and industry engagement. This policy has now been updated to reflect our constantly evolving approach with key developments such as a new section on sustainability outcomes, our guiding principles on proxy voting and further explanation of our exclusions process.
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