07 November 2023

    Geopolitics take centre stage in October

    Ashley Gardyne

    Chief Investment Officer

    Ashley Gardyne

    Chief Investment Officer

    As Fisher Funds celebrates 25 years of helping Kiwis achieve their ambitions, we have been hosting our annual roadshows, meeting clients across the country. It’s been great to be out seeing clients again, including a handful at each event that have been with us for most of the 25-year journey. The last two and a half decades have been good for investors, despite numerous temporary setbacks along the way – including recessions, wars, pandemics and two major market meltdowns.

    Markets fall as geopolitics and conflict fills the news

    With the recent tragic events unfolding in the Middle East, geopolitics have again taken centre stage in markets and the media during October. How far might the war escalate? How might it impact energy prices and economic growth? Could it result in a resurgence in inflation, which had been coming down for most of the year? Events like these unnerve investors and can impact markets – at least in the short-term.

    Share markets were also unsettled by a sharp increase in interest rates during the month. The US 10-year government bond yield started the month at 4.6% but jumped to 5.0% during the month (the highest rate in 15 years). Part of the reason for higher interest rates was economic data that showed a resilient global economy, with employment data and economic growth continuing to surprise to the upside. US GDP growth for the third quarter came in at 4.9%, well ahead of expectations and driven in part by strong consumer spending. Higher growth has led investors to expect central banks to hold interest rates higher for longer.

    As geopolitical tensions rose and interest rates climbed in October, share markets ended up having one of the toughest months of the year. Global markets (MSCI World Index) were down 3.0%, the New Zealand share market (NZX 50 Index) fell 4.8%, and global bond markets also fell 1.2%. Despite the weaker month, global equities (which make up the bulk of many KiwiSaver growth funds) are still up 6.4% year-to-date.

    25 years of surprises

    The 25 years Fisher Funds has been operating is also close to the period I have been investing in the share market. There have been lots of shocks and surprises along the way, each of which seemed dramatic at the time. In one of my first years as an investor I witnessed the dotcom crash in the US, where the US S&P 500 fell 49% and the tech-heavy Nasdaq Composite fell 78%.

    Next came the 9/11 terror attacks in New York and the closing of the US stock exchanges for the longest period since the great depression. Then we had the wars in Afghanistan and Iraq, the collapse of Lehman Brothers, the Global Financial Crisis and the European sovereign debt crisis. Everything went calm for a period, but then in short order we had Brexit, Covid and global lockdowns that froze supply chains and entire economies, and then more recently the war in Ukraine.

    We have written about most of these events over the last 25 years (or 300 monthly client newsletters), in part because clients ask questions about how these events impact markets and what we are doing about them.

    These events result in a spike in fear and often become the biggest feature of the 24-hour news cycle. But from an investor’s perspective, they often don’t warrant as much attention as the media would want you to believe. It can actually be the things that aren’t widely reported on that are more important for investors.

    25 years of growth

    Despite having read countless articles in my career about a ‘productivity problem’, about how economic growth is slowing, and about whether the planet is going to be able to accommodate and feed a growing population – we have seen a huge amount of innovation and economic progress over the last 25 years.

    When I entered the workforce over two decades ago, there weren’t many mobile phones (and certainly not smart phones). I used a fax machine to send memos to clients and email was just in its infancy. Huge industries that are now driving the share market didn’t even exist – be it digital advertising (Alphabet and Meta), ecommerce (Amazon, Alibaba), cloud computing infrastructure (Amazon and Microsoft), or silicon chips for artificial intelligence (Nvidia).

    A lot has changed in a short period of time, driving economic growth, strong returns for share market investors, and improved living standards for all (over a billion people have been lifted out of poverty over the last 25 years). The global economy is 230% bigger than it was 25 years ago. The US and NZ share markets are both up over 500% over this period. There were countless times where geopolitical unrest could have convinced investors to sell-up and step out of the market. But this would have been the wrong call.

    Keeping it all in perspective

    It’s important to keep monthly market movements in perspective. October was weaker than usual, but months like these are regular occurrences in markets and through a longer-term lens they simply look like small bumps in the road.

    One of our key lessons from 25 years of investing is to not get distracted by short-term noise. When we focus on the long-term prospects for markets and our portfolio companies, we believe the fundamentals are still strong for investors wanting to build wealth over the long term.

    Geopolitics have taken centre stage in October but should be treated like a side-show by prudent investors.

    Talk to us

    If you would like to talk to someone about your investment strategy, the team at Fisher Funds are here to help. Please contact us or get in touch with your adviser.