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February global commentary: World markets retreat as Russia invades Ukraine

Global stocks were negotiating the first part of February relatively well – roughly flat, in aggregate, by mid-month. US earnings were largely going according to plan, with most S&P 500 companies having reported 4Q21 earnings by month-end, and aggregate earnings growth of c. 30% YoY – c. 6% ahead of consensus analyst expectations. There were notable exceptions amongst the positive earnings surprises, including some from the darlings of the pandemic, like Facebook owner, Meta, which saw its share price fall 26% on the day after reporting earnings that included a disappointing outlook for 1Q22 revenue amidst stagnating user growth, larger-than-expected headwinds related to Apple’s privacy updates, and increasing competition for advertising spend from the likes of TikTok. The share price drop wiped c. US$250bn from Meta’s market cap in a single day, the biggest ever drop in value for a US company. PayPal and Home Depot were also amongst the companies experiencing big share price declines in the wake of their results.

Towards month-end, the focus on corporate earnings shifted swiftly to the escalating conflict in Ukraine with Russian troops crossing the border, intent on forcing a regime change in their former Soviet Union neighbour. By month-end, nations around the world were scrambling to roll out sanctions against Russia and its leaders, with the conflict still raging and the endgame remaining highly uncertain. Headlines suggesting Russian president, Vladimir Putin, had put his nuclear deterrent forces on high alert, raised fears of a conflict escalating beyond Ukraine and left investors shunning risky assets (MSCI World -2.5% MoM). Russian assets bore the brunt of the sell-off, with the MSCI Russia Index down 53% MoM and the Russian currency falling 26% MoM. Russia’s role as the third-largest oil producer globally, supplying natural gas, oil, and coal for c. 25% of the European Union’s (EU’s) energy needs caused heightened anxiety about the impact that the conflict might have on global energy supplies at a time when the pandemic and unusual weather patterns were already elevating demand and restricting the supply of energy commodities.

Brent crude oil spiked 11% MoM to end February above $100/bbl, leaving the S&P 500 energy sector (+7% MoM) as the only sector to end the month in positive territory. Other emerging markets (EMs) fared better, particularly those with meaningful commodity exports like Brazil and South Africa (SA), which saw their stock markets close the month higher (+0.9% and +2.7% MoM, respectively). In aggregate, EMs still fared worse than developed markets (DMs) for the month (MSCI EM -3% MoM).

The month had started with a continuation of concerns around elevated global inflation levels and US inflation data for January (released early in February) did nothing to assuage those fears, with US headline inflation of 7.5% YoY coming in ahead of expectations and higher than December’s print (7% YoY, the highest inflation level in 40-years). The spike in energy prices related to the conflict will exacerbate inflationary pressures, and markets are still anticipating that the US Federal Reserve (Fed) will deliver five 0.25% rate hikes this year. However, US 10-year government bond yields retreated from their mid-month highs of 2.05% to end the month at 1.8%. This was likely due to a combination of investors driving yields lower as they shifted towards less risky assets and perhaps also a reflection of an expectation that the Fed will be able to proceed more cautiously with unwinding its growing balance sheet in light of the impact that the conflict in Ukraine might have on dampening economic activity globally.



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WEBINAR | The Navigator – Anchor’s Strategy and Asset Allocation, 2Q24

Anchor CEO and Co-CIO Peter Armitage will host the webinar, provide an introduction to current global and local market conditions and give his thoughts on offshore equities. Together with Head of Fixed Income and Co-CIO Nolan Wapenaar, Pete will also discuss Anchor’s strategy and asset allocation for 2Q24, focusing on global equities and bonds. In addition, Fund Manager Liam Hechter will provide insights into local equities, highlighting some investment ideas; Global Equities Analyst James Bennet will discuss Ferrari and give an update on Tesla, and finally, Analyst Thomas Hendricks will participate in a Q&A with Peter, explaining the 10-year US Treasury to attendees.