Your quarterly market commentary

A strong finish to 2024 for savers and investors
 

• Strong returns to end 2024 - AMP KiwiSaver Scheme diversified funds delivered another solid quarter, capping off a year of returns well above long-term expectations.
• Markets overcame global uncertainty - Despite headlines around inflation, geopolitical events, and economic growth concerns, investment markets remained resilient.
• Looking ahead - Key trends like AI, demographic shifts, and market diversification will shape future opportunities. Staying diversified remains essential.
• Need help? - If you have questions about your KiwiSaver or investments, our team is here to support you.

Over the last quarter of 2024, savers and investors enjoyed another very strong period of positive returns in their funds.  This capped off an excellent year for 2024, with returns being well above long-term averages and expectations.

The AMP KiwiSaver Scheme diversified funds delivered returns between 1.76% for the AMP Conservative Fund, and 6.43% for the AMP Aggressive Fund, during the period from 1 October to 31 December 2024.  Over the full year, the range was 9.46% for the AMP Conservative Fund to 20.01% for the AMP Aggressive Fund.  All returns are after fees, but before tax.  The largest fund in the AMP KiwiSaver Scheme, the AMP Balanced Fund, produced a 13.86% return over the year, after fees.

Over the course of the year, and continuing in the last quarter, there was no end of headlines and news that might make casual observers believe that global events would have a negative impact on investment returns.  Geopolitics, regional conflicts, inflation, growth concerns and changes in global leaders provided plenty of headlines.  As regularly discussed in our commentaries, we urge our customers to look through short-term ‘noise’ and focus on the long-term.  The last few months of 2024 was another good example of why this is an important message for savers and investors to remember.

During the last quarter of 2024, three key themes were on our minds:

1. US election of President Trump
 

In the United States, the re-election of President Trump and the Republican Party's control of both chambers of Congress boosted investor expectations for a more business-friendly environment, including deregulation and tax cuts. This resulted in US sharemarkets rallying and posting double-digit returns. For the year, the “Magnificent 7” companies dominated as the group accounted for 53.1% of the S&P 500’s 2024 total return with annual gains by Apple (+31%), Nvidia (+171%), Microsoft (+13%), Amazon (+44%), Meta (+66%), Tesla (63%), and Alphabet (+36%).

The Federal Reserve lowered interest rates by 0.25% in both November and December.  While this would normally be positive for bond markets, they did not fare as well, as markets are now pricing in fewer interest rate cuts for 2025 amid fears that Trump’s policies could be inflationary. 

2. Divergent growth paths within global markets
 

Global growth showed varying trends across different regions. 

Sharemarkets across Europe generally declined near the end of 2024 amid fears of recession. Poor growth from Germany and France dominated market sentiment, while political uncertainty in Germany added to the challenges.  The European Central Bank (ECB) cut interest rates by 0.25% in both October and December. ECB President Christine Lagarde signalled more cuts to come in 2025, saying the “direction of travel currently is very clear” as the single currency area wrestles with lacklustre growth.

In contrast, Japan’s sharemarket posted a healthy gain for the quarter as the Bank of Japan declined to raise interest rates in December citing inflationary pressures as the economy continues to rebound. 

China's government announced numerous stimulus measures but negative sentiment regarding the potential impact of tariffs from the Trump administration dampened sharemarkets. China’s economic growth remains lacklustre (relative to expectations) despite significant stimulus measures. However, these measures have not all been implemented yet and the impact has so far been very limited.

There are different growth scenarios playing out across different regions, therefore maintaining a well-diversified portfolio will be important as regional differences emerge.

3. Global inflation remains persistently sticky
 

Throughout 2024, we have argued that inflation will remain higher for longer – contrary to many commentators and how markets were pricing inflation risk.  Now it seems that most are now accepting that inflation is not going away easily.

In the US, ongoing concerns about inflation and fiscal sustainability led to a broad sell-off in the bond market. Bonds were one of the few asset classes where performance came under pressure during the quarter. 

In Europe, high inflationary pressure limited the ECB's ability to inject stimulus into its economy by cutting interest rates further and it is expected that the ECB is in ‘wait and see’ mode. At this point, it is a trade-off between persistent inflation and subdued economic growth.

In New Zealand, inflation is back within the 1-3% target band for the Reserve Bank, enabling our central bank to reduce the Official Cash Rate to address slowing economic conditions. Whilst this enables the Reserve Bank to cut rates to stimulate growth in the economy, we continue to remain susceptible to global price inflation and the NZ Dollar weakened over the quarter against the US Dollar, making it more expensive to import goods.

Outlook
 

Predicting the future is always fraught with risk.  It’s always easy to think about the risks ahead – and they are always present.  However, the further out you look, the more confident you can be with your views.

We think that there are a number of transformative changes occurring that provide opportunities for the economy, markets and ultimately savers and investors in the markets.  Economies are being transformed by mega forces such as Artificial intelligence (AI), geopolitical fragmentation and aging populations.  We see long-term economic trends being reshaped by these forces now.

AI will continue to deliver benefits, and we expect that the benefits will broaden out from the ‘Magnificent 7’ as more businesses and companies generate benefits from AI.  We think the AI investment opportunity will continue to first play out in the US sharemarket, where more technology-supported businesses are listed.

There is a lot changing in the world at present.  But is this any different to other times in the past?  Falling leaves make the way, but the key, as always with investing, is to retain good diversification and make sure your fund is aligned to your risk profile.

As always, if you need a little help with your investments or savings, please make contact with one of our team.