Equity markets, particularly in New Zealand and the US, were relatively strong during the quarter rising by between 5% and 7% though there was also a high level of volatility which belies a general level of nervousness about the level of valuations (equities being no longer particularly cheap) and the risk of “black swan” events such as we saw recently with the large fall in oil prices during the quarter and the removal of the cap on the Swiss exchange rate by the Swiss central bank.

The fall in oil prices, in particular, is now raising the risk of deflation in the developed world, particularly Europe. The European central bank has acted recently to this risk by announcing a very large quantitative easing policy similar to those executed in Japan and the US. Our own Reserve Bank has indicated that tightening from the current OCR of 3.5% will now be later than previously thought at the start of the quarter. The low prevailing level of interest rates should help to underpin asset values over the coming 12 months.

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