January global commentary: A tough start to the year

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Developed market (DM) stocks had their worst start to a year since 2016 (MSCI World -5.3% MoM). This, as the prospect of tightening monetary conditions weighed on stocks, particularly growth stocks which recorded their biggest monthly underperformance relative to value stocks since 1999 (MSCI Global Growth -9.3% MoM vs MSCI Global Value -1.3% MoM). The increasingly hawkish stance of the US Federal Reserve (Fed) coincided with the latest US inflation print coming in at a 40-year high (7% YoY) and, by the end of January, markets were anticipating five US rate hikes of 0.25% each in 2022 (up from an expectation for three hikes in 2022 at the start of the year). Fed minutes also showed that members had started discussing the prospect of shrinking the Fed balance sheet once rate hikes had started. US 10-year government bonds climbed 0.3% to 1.8% during the month.

US corporates started reporting 4Q21 earnings into this volatile market, with around one-third of companies having reported by month-end. Their aggregate earnings grew by 34% YoY – 5% ahead of expectations. In an already tough environment for growth stocks, Netflix reported earnings ahead of expectations, but with disappointing guidance and subscriber growth and the stock saw 29% (c. US$77bn) wiped off its market cap in January. Credit card companies fared better during the month, surprising investors with the rate at which cross-border and travel spending on cards was returning and the share prices responded well (Amex +10% MoM, Mastercard +8% MoM and Visa +4% MoM).

Emerging markets (EMs) also had a tough start to 2022, although they fared significantly better than their DM peers (MSCI EM -1.9% MoM) as they started to claw back some of the 24% underperformance which they suffered relative to DM equities in 2021. Chinese equity markets, which have been amongst the worst-performing global markets for the past year, were among the best performing at the start of 2022 (Hang Seng China Enterprises Index +1.4% MoM) as the Peoples Bank of China (PBOC) moved in the opposite direction to DM central banks, loosening monetary policy in an attempt to reignite flagging economic growth. The prospect of a Chinese government looking to stimulate economic activity helped drive industrial metals higher (iron ore +12% MoM) and this was a boost for commodity-exporting countries such as Brazil (Brazilian Bovespa +7% MoM) as well as for the currencies of commodity exporters which rallied relative to the US dollar (Brazilian real +5% MoM, South African rand +3.7% MoM, Chilean peso +6.4% MoM). Unfortunately, geopolitical tension prevented Russian markets from participating in the EM rally (MSCI Russia -8.9% MoM) as Russian troops gathered on the border with Ukraine, introducing the prospect of sanctions on Russia and its leaders. Geopolitical tensions with one of the world’s largest oil producers put pressure on already tight global energy markets and saw Brent crude oil end the month 17% higher at US$91/bbl.

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