Key Market Movements for Q2 2026

New Zealand Shares

The New Zealand share market posted a solid second quarter of 2026, with the S&P/NZX 50 Index (Gross with Imputation) returning +5.6%. While this represents a healthy gain in absolute terms, local market returns lagged those of developed and emerging international markets, reflecting New Zealand’s limited exposure to the AI and technology themes that dominated global investor attention during the period. The index reached record highs over the course of the quarter, extending the recovery that has been underway since 2025.

The domestic economic backdrop provided a mixed but broadly supportive environment for New Zealand shares. The Reserve Bank of New Zealand (RBNZ) held the Official Cash Rate (OCR) steady at 2.25% at both its April and May review meetings, although has subsequently increased the rate at their 8 July meeting. The stable OCR during the second quarter provided a predictable backdrop for sectors most affected by interest rates, including utilities, real estate, and infrastructure companies, which represent a significant portion of our local share market.

New Zealand shares continue to offer a relatively defensive and income-oriented return profile compared to international markets, and the modest underperformance versus global peers during the quarter reflected the structural difference in sector composition rather than any deterioration in domestic conditions.

Source: S&P/NZX 50 Index (gross with imputation credits)

New Zealand Fixed Interest

New Zealand fixed interest delivered solid returns in the second quarter of 2026, outperforming the major international bond indices. The S&P/NZX A-Grade Corporate Bond Index returned +2.5%, reflecting a combination of stable short-term rates, the residual benefit of the RBNZ’s completed cutting cycle, and continued investor demand for investment-grade domestic credit.

The RBNZ held the OCR unchanged at 2.25% at both the April and May meetings during the quarter. This was consistent with Governor Breman’s late 2025 guidance that the OCR was likely to remain at this level for some time if economic conditions evolved as expected. Yields drifted down over the quarter leading to strong returns from domestic debt, especially securities with longer duration.

The New Zealand corporate bond market benefited from continued investor appetite for domestic credit. Corporate bonds outperformed government bonds over the quarter, as tighter credit spreads amplified returns relative to the risk-free curve. New Zealand companies continued to issue debt into a receptive market, with strong domestic demand for investment-grade fixed income securities.

The higher return from corporate bonds relative to cash and international fixed income reflected both the additional credit spread available on domestic investment-grade issuers and the relatively modest change in the underlying New Zealand yield curve through the quarter.

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

Australian Shares

Australian shares delivered a positive second quarter of 2026, with the S&P/ASX 200 Total Return Index gaining +5.6% in NZD terms. Like New Zealand, the Australian market lagged its international peers materially, given the Australian market’s heavier weighting toward resources, financials, and other value-oriented sectors that were less directly exposed to the technology rally driven by AI investment that powered global returns during the quarter.

The Reserve Bank of Australia left its cash rate target unchanged at 4.35% at its June meeting, pausing after three consecutive rate increases earlier in 2026 that had reversed the easing cycle delivered in 2025.

The financials sector was the largest positive contributor to Australian market returns. Australian banks benefited from the global trend toward AI-driven capital markets activity and demonstrated resilient earnings, with credit quality remaining broadly stable despite the higher rate environment. The information technology sector was also among the better performers on the ASX, albeit comprising a relatively low proportion of the market. This was a reflection of the same AI-related tailwind that drove technology shares globally. Energy and materials sectors delivered mixed outcomes. While the initial spike in oil prices in April benefited energy producers, the subsequent decline as ceasefire expectations emerged removed some of that tailwind, and the sector’s contribution to overall returns was modest by quarter-end.

Source: S&P/ASX 200 Index (total return)

Emerging Markets Shares

Emerging market shares delivered an exceptional second quarter of 2026, with the MSCI Emerging Markets Index returning +25.5% in NZD terms, taking it’s twelve month return to a staggering +54.0%. These are the highest returns from this index over any 3 or 12 consecutive month period since early 2006. The performance was overwhelmingly driven by the technology-oriented markets of South Korea and Taiwan, both of which benefited from the powerful AI investment theme.

South Korea was the standout performer of the quarter. The KOSPI Index gained 68% over the three months, with index heavyweights SK Hynix and Samsung Electronics delivering extraordinary share price gains as demand for AI memory chips and semiconductors surged. Taiwan similarly delivered, with TSMC and other semiconductor and electrical equipment companies driving the Taiwanese market materially higher as investor demand for AI-exposed shares remained intense.

China’s market underperformed the broader emerging market index over the quarter. Weakness in the retail and auto sectors weighed on sentiment, and the broader domestic consumption recovery remained uneven. The MSCI China index lagged the group materially, in contrast to the strong performance seen across Northeast Asian technology markets.

The divergence between China and its technology-heavy peers underscored that emerging market gains during the quarter were concentrated, driven predominantly by AI and semiconductor exposure rather than widespread economic optimism across the asset class.

Source: MSCI Emerging Markets Index (gross div.)

New Zealand Property

The New Zealand REITs market regained some of their earlier losses by returning +4.9% for the quarter. As yields drifted down over the quarter this made yield from REITs more attractive. The yield spread from REITs over NZ Government Bonds continues to increase and the sector would benefit if NZGB yields move lower in the future.

In the quarter, Goodman Property (10.6%) , Vital Healthcare Property (7.4%) and Stride Property (+6.9%) were the top performers with Argosy Property (-5.4%) showing negative returns.

Source: S&P/NZX All Real Estate Index.

International Shares

International developed market shares delivered outstanding gains over the second quarter of 2026, with the MSCI World ex Australia Index returning +13.6% hedged and +15.3% unhedged. The divergence between the hedged and unhedged returns reflects a continued weakening of the New Zealand dollar relative to the basket of major currencies over the period, which added to the returns for investors with unhedged foreign currency exposure.

US shares posted strong gains, supported by the robust earnings season and the AI capital expenditure narrative. The Federal Reserve held its benchmark federal funds rate steady at 3.50%–3.75% at its April and June meetings, acting on its dual mandate in an environment of solid economic activity but elevated inflation. Despite the more cautious policy outlook, the earnings and AI investment cycle proved sufficient to sustain equity market momentum through the period.

European shares also rallied strongly over the quarter as energy supply concerns eased and consumer confidence recovered from April lows. UK shares lagged other developed market regions due in part to the British share market’s relatively large exposure to the energy sector, whose earnings prospects were weighed on by the decline in oil prices.

Japan’s equity market continued its recovery, supported by the beneficial effect of the weaker yen on Japanese exporters’ earnings. The Bank of Japan raised its policy rate by 25 basis points to 1.0% in June in response to persistent yen weakness and growing concerns that higher energy cost pressures were feeding through to broader producer prices. While the yen strengthened marginally on the announcement, it remained at historically weak levels, continuing to provide a competitive tailwind for Japanese exporters.

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

International Fixed Interest

Global bond markets delivered modest positive returns in the second quarter of 2026, with the FTSE World Government Bond Index 1–5 Years (hedged to NZD) returning +0.5% and the broader Bloomberg Global Aggregate Bond Index (hedged to NZD) returning +1.0%. Elevated inflation, driven largely by the sharp rise in energy costs during the Middle East conflict, kept central banks cautious and prevented yields from declining materially.

In the US, government bond yields were broadly stable through the quarter, with the 10-year bond moving mildly higher to 4.42%. The Fed’s decision to hold rates steady at 3.50%–3.75% in June was broadly anticipated, but its policy stance remained cautious while inflation stayed above target. Despite this, the labour market remained relatively stable, limiting the concern that wage-driven inflation would compound the energy price shock.

In Europe, the European Central Bank’s decision to raise its deposit rate to 2.25% was well-flagged and well-received by markets. European government bonds performed slightly better than their American counterparts, with falling inflation expectations – as oil prices began to retreat from their April highs – and a weaker growth outlook providing support for bond prices.

The most significant development in global fixed income came from Japan. The Bank of Japan’s (BOJ) June rate hike to 1.0% – the highest policy rate since 1995 – drove Japanese Government Bond (JGB) yields materially higher. JGBs underperformed the broader global bond index over the quarter, as persistent yen weakness, rising producer prices, and the BOJ’s clear commitment to policy normalisation contributed to upward pressure on yields.

In credit markets, spreads tightened across both investment grade and high yield bonds globally, supported by the strong corporate earnings environment and improving risk sentiment, which partially offset duration-related pressures.

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