Mercer Investment Insights Q3 2026

Welcome to this edition of Investment Insights. Today we have Del Hart, Mercer New Zealand's Chief Investment Officer with us. Welcome Del. Thank you, nice to be here. First of all, let's talk about oil prices, as it is something that is impacting investors and everyone at the pump. We have seen a decline in the oil prices after the United States and Iran agreed to a framework deal to end their recent conflict. How have these been impacting the markets in the last quarter? The price of oil is perhaps more influential than you might think. Not only is it a key input into inflation, which influences how central banks think about interest rates, we know it can also be a material cost for businesses and for households. So as oil prices have come down, this has created some optimism in markets. Overall, markets have rebounded nicely since the last quarter and have posted solid returns. In local currency terms, global equities around 13%. Over the quarter, emerging markets were up around 25%. Both of these regions are still seeing really strong AI-related earnings growth in the face of geopolitics. Equity market returns were a bit weaker here in New Zealand, up around 5%. Bond markets were mildly positive as well. So for a typical balanced fund, returns should be looking fairly healthy. In June, SpaceX officially joined the NASDAQ. Can you please talk about why this inclusion matters to investors? SpaceX's recent initial public offering was staggering, and it's no surprise that it made global headlines given it's the largest IPO in history. So after jumping 19% in its first day of trading, the stock has been very volatile and its share price now sitting a fraction below its initial listing price. Overall, Mercer views initial public offerings, such as SpaceX's, as a positive for equity investors to consider, as they bring transparency to companies important for economic growth and it broadens the investment opportunity set. It also more closely aligns public markets with the broader economy. Mercer clients currently have minimal exposure, and that's through our actively managed global shares portfolios. At 30 June, only one of our managers, they make up 33% of the overseas shares portfolio, had invested in this stock. So when you think about the portfolio weighting for global shares, it's only really 0.015%. For an immersive balanced fund investor, this position is really modest at 0.004%. So for our passive overseas shares portfolios, due to different benchmark index methodologies, the earliest we're expecting to see SpaceX pop up is likely to be November this year. The Reserve Bank of New Zealand lifted the official cash rate by 0.25%. Looking ahead, what impact may it have on the markets, and what should investors keep an eye on more broadly? We'd recommend listening closely to what central banks are saying about the future level of interest rates, particularly the US Federal Reserve and the Reserve Bank of New Zealand. Should the Iran conflict continue in some way, shape or form, and continue to put pressure on energy prices, inflation that may raise higher could imply interest rate rises more than what the market's currently expecting. The local equity markets don't like interest rate hikes, and neither do the bond markets in the short term. Secondly, we'd recommend keeping a close eye on the new company listings in the USA. I've already spoken about SpaceX, but there are more coming to the market soon, Anthropic, OpenAI, and the financials company Revolut. So gauging investor sentiment as these listings come to market is going to be something to watch, especially for those AI-related names. Global equity markets are still highly concentrated in this theme and are richly valued, so any weakness could drag down the overall market. Future development-wise, here in New Zealand, we have an election coming up on the 7th of November. Historically, we've seen the pre-election period causing some uncertainty and volatility in markets. This leads to a really cautious wait-and-see approach, followed by some stabilisation post-election once the dust has settled. When navigating a market environment like I've just described, it's important to ensure that you're invested in the right fund option which suits your investment risk profile. And if you need help, please call your investment advisor. Thanks Del, and thank you for watching. Remember to visit the website for up-to-date performance and market information.