General Market Comments – March

March 2022 Market Comments: Solid as a Rock?

Solid, soild as a rock ?

Someone being told in December 2021 that the subsequent month of an invasion of Ukraine by Russia, with its cortege of implications, and notably on commodities, would see markets going up significantly, would have taken this assertion as a joke.
But this is no joke: in a month of extremely high geopolitical risks and possible escalation, soaring commodity prices and inflation expectations on top of surging Covid cases and increased supply-chain issues, markets have decided to walk on the sunny side of the street and post surprisingly good returns.

To wit, the MSCI World added +2.52% and is “only” down 5.53% year to date, while Credit also performed well (the Itraxx Crossover rose +1.25%) while Gold, although on the rise with a positive +1.49% performance in March, did not seem to reflect the extreme fear that most investors perceive.

The main financial victims of this situation are, so far, Emerging Markets, and in particular China: the Chinese CSI300 Index lost 7.84% in March and is now down 13.44% year to date.
With the first 2022 earnings releases looming, all eyes and ears will be focused on outlook and guidance. It is impossible that companies do not mention the geopolitical events’ consequences on their businesses, while they also will have to give a proper view on the implications of record-high commodity prices and supply-chain issues on margins and pricing. We can expect a very cautious tone, barring the obvious beneficiaries of the current mess, namely resources companies essentially.

To add to the unexpected set of observations in March, the upsurge in Government bond yields (US and German 10 years respectively up 51 and 41 bps) did not prevent Growth from outperforming Value, which is quite counterintuitive. The MSCI World Growth rose +3.14%, versus a +1.96% positive return for the MSCI World Value. And finally, the Japanese Yen, often seen as a safe haven currency in troubled times, fell 5.6% against the dollar, mitigating the relative resistance of the Japanese equity market, which is only down 2.41% this year when measured in local currency.

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General Market Comments – February

February General Markets Comments

War, what is it good for? Absolutely Nothing. It ain’t nothing but a heart-breaker, Friend only to The Undertaker. Oh, war it’s an enemy to all mankind Edwin Starr, 1969

It is a heart-breaker to talk about markets in the current environment when we know what’s happening in Ukraine, with consequences far beyond financial markets.

In this highly frightening context, it should come as no surprise to witness weakness overall for most assets, barring some of the traditional safe havens like Gold (up 6.2% in February, but only 4.4% year to date), the US dollar or the Swiss Franc.

Equities fell, but so did Government bonds, which is quite amazing in such an environment, even though they ended up stronger this month than they had started. The US 10 year saw its yield rise by 5 basis points, the German Bund by 12 basis points, and to highlight the risk-off attitude adopted by investors, the Italian 10 year yield jumped by 40 basis points. Credit suffered its second consecutive month of significant drawdown with a -2.4% return for the Itraxx Crossover in February (-4.4% year to date).

On the equity side, despite encouraging earnings publications, there were no places to hide: the MSCI World abandoned 2.7%, the S&P 500 3.1%, the MSCI Europe 3.2% and the MSCI Emerging Markets 3.1%; Japan showed some resistance with a limited 47 basis points retreat for the Topix.

Heightened tensions in commodity producing regions, added to the perspective of severe sanctions against Russia, propelled most commodity prices to the upside: Oil surged by 8.6% and is now up 27.3% in 2022, while the broad CRB Commodity Index added 5.5% in February (+15.8% year to date).

Such a strong performance from Commodities, coupled with steady levels of interest rates, clearly favoured Value sectors in equity markets: although the MSCI World Value was down 1.8% for the month, it fared much better than the MSCI World Growth which fell 3.6%; on a year-to-date basis, the former is only down 3.1% while the latter largely lags with a negative 12.6% return.