Key Market Movements for Q1 2026

New Zealand Shares

In line with the global trend, the New Zealand share market delivered a negative return for the first quarter of 2026.

At the beginning of the year, early signs pointed to a broadening economic recovery, supported by continued easing from the Reserve Bank of New Zealand (RBNZ). While total returns to the end of February were modestly positive, the New Zealand market was unavoidably affected by the Middle East conflict in March.

However, not all company fortunes suffered in the face of the changing international landscape. Among the quarter’s notable positive contributors, A2 Milk (ATM) advanced +7%, continuing its recovery trajectory underpinned by sustained milk powder demand from Asia. Infratil (IFT) also gained +5%, reflecting investor confidence in its diversified infrastructure and digital asset portfolio. The financials sector was another source of relative strength, with NZX-listed banks – including Westpac and ANZ – posting positive returns on the back of improving net interest margins.

On the other side of the ledger, the quarter produced several significant casualties. EBOS Group (-19%), Fletcher Building (-20%), and Mainfreight (-16%) all declined, each reflecting distinct but overlapping issues in relation to cost pressures and declining profitability. KMD Brands (KMD), the parent company of Kathmandu and Rip Curl, was the most dramatic underperformer in the quarter, with its share price declining almost -60%. The company undertook a heavily discounted capital raise, reflecting both the urgency of its balance sheet position and the sustained deterioration in profitability across its retail business.

Source: S&P/NZX 50 Index (Gross with Imputation)

New Zealand Fixed Interest

New Zealand investment-grade corporate bonds delivered a modestly negative return for the quarter, consistent with the pattern of rising yields and widening credit spreads observed across global fixed income markets. The RBNZ held the Official Cash Rate at 2.25% at its February 2026 review, offering no new directional impetus for domestic interest rates.

The New Zealand 10-year Government Bond yield closed the quarter at 4.76%, +0.23% above its level at the start of the year. This was in line with the broad international trend of upward yield pressure as inflation expectations were revised higher in response to the global energy shock.

Corporate bonds underperformed domestic government bonds over the period as credit spreads widened in line with global patterns, reflecting the elevated risk aversion that characterised the latter part of the quarter.

The S&P/NZX A-Grade Corporate Bond Index fell -0.5% for the quarter, while the longer duration but higher quality S&P/NZX NZ Government Bond Index declined by -0.6%.

Source: S&P/NZX A-Grade Corporate Bond Index

Australian Shares

Although the S&P/ASX 200 Index delivered -1.6% in Australian dollar terms over the quarter, it exhibited greater resilience than many of its global developed market peers. The principal driver behind this stronger relative return was Australia’s substantial weighting in energy and materials companies – sectors that benefited directly from the sharp rise in commodity prices triggered by the Middle East supply disruption.

The Bloomberg Commodity Index advanced +24.4% for the quarter, with oil and gas prices surging sharply as the conflict curtailed regional supply and restricted passage through the Strait of Hormuz. Australian resource companies were well positioned to capture the associated earnings tailwind, and the commodity-heavy composition of the S&P/ASX 200 Index proved a structural advantage in that environment. Market heavyweights BHP and Woodside Energy both delivered solid returns in the quarter and helped buoy the Australian market overall.

With the Australian dollar strengthening around +3.5% against the New Zealand dollar, reported returns to New Zealand investors were around +1.9% for the quarter.

Source: S&P/ASX 200 Index (Total Return)

Emerging Markets Shares

Emerging market shares ended the quarter near flat, outperforming developed markets. Early in the quarter, technology-driven markets in the region benefited from sustained investor enthusiasm for AI-related hardware and semiconductor companies such as the big players found in South Korea and Taiwan. This provided a meaningful offset to broader share market weakness, particularly for markets with significant exposure to the global technology supply chain.

The outbreak of conflict in the Middle East introduced a sharp new headwind as the quarter progressed. With a substantial share of globally traded oil and gas destined for Asia transiting the Strait of Hormuz, the disruption to that critical corridor raised immediate concerns about energy costs and supply security across the region. This contributed to a swift reduction in investor sentiment during the latter part of the quarter.

A stronger US dollar compounded the challenge, as dollar strength typically tightens financial conditions and weighs on capital flows to emerging economies. Despite these pressures, the breadth and geographic diversity of the emerging market universe allowed the asset class to absorb regional shocks more effectively than the concentrated losses experienced across developed markets.

Source: MSCI Emerging Markets Index (net div.)

International Shares

Developed market shares declined over the quarter, with weakness concentrated in the US and continental Europe, while Japan and the UK offered some relative resilience.

In the US, large-cap technology companies came under pressure early in the quarter as investors grew increasingly sceptical about whether the scale of AI-related capital expenditure could generate sufficient future returns. US software shares fell sharply through late February, and while the technology sector demonstrated some relative stability in the immediate aftermath of the Middle East conflict, it still finished the quarter with material losses.

European shares struggled as rising natural gas prices reignited concerns about the region’s growth trajectory. The European Central Bank held interest rates steady at its March meeting but adopted a notably more ‘hawkish’ posture, signalling that rate increases are a live possibility given the upward revision to its inflation projections.

The UK share market was a notable exception among European peers, delivering a positive return for the quarter. The commodity-heavy composition of the UK market proved advantageous, as energy and materials companies benefited from higher global prices, and a modestly weaker British Pound provided an additional tailwind for the large number of UK-listed companies with significant international revenue streams.

Japan’s share market was the standout performer among major developed markets. Japanese Yen weakness provided a structural boost to export-oriented businesses, while the ruling Liberal Democratic Party’s (LDP) decisive victory in the February snap election was interpreted by investors as supportive of continued fiscal stimulus for the domestic economy.

Source: MSCI World ex Australia Index (net div.)

International Fixed Interest

Global bond markets experienced a volatile and broadly negative quarter, as the inflation shock driven by higher energy prices prompted a rapid repricing of central bank policy expectations across major economies. The shorter-duration FTSE World Government Bond Index 1-5 Years slightly outperformed the broader Bloomberg Global Aggregate Bond Index over the quarter, reflecting its lower sensitivity to the rise in longer-dated bond yields.

US Treasuries provided relative stability within the global fixed income universe. The US position as a net energy exporter helped insulate it from the most acute inflationary impulse of the commodity price spike. With the Federal Open Market Committee holding interest rates unchanged at its March meeting and maintaining its baseline projection of a single cut during 2026, the US policy outlook remained comparatively well anchored relative to peers. The 10-year Treasury yield ended the quarter at 4.31%, which was +0.16% above its level at the start of the year.

UK Gilts were the weakest major sovereign bond market for the quarter. Prior to the conflict, Gilts had been the top-performing sovereign market globally, with improving domestic inflation data fuelling expectations for future Bank of England rate cuts. The energy shock reversed this dynamic abruptly, as the UK’s relatively high dependence on natural gas left it particularly exposed to the commodity price surge. The Bank of England held its policy rate at 3.75% at its March meeting but adopted a decisively hawkish tone, implying a likely bias toward future tightening. UK 10-year Gilt yields closed the quarter at 4.88%, this was +0.40% higher than at the start of the year.

European sovereign bonds also weakened over the period, as the European Central Bank left interest rates unchanged at its March meeting but strongly indicated that rate increases are a realistic outcome, as updated projections pointed to materially higher headline inflation in the second quarter of 2026.

Japanese Government Bonds recorded losses as longer-dated securities sold off ahead of the February snap election, with investors anticipating a looser fiscal stance from the returning LDP administration. The Bank of Japan indicated at its March
meeting that it remains more attentive to upside inflation risks than to the downside growth implications of the external energy shock, leaving interest rate increases a credible possibility.

Source: FTSE World Government Bond Index 1-5 Years (hedged to NZD), Bloomberg Global Aggregate Bond Index, hedged to NZD