The conflict in Ukraine remained the key driver of news headlines in March but, despite this, developed market (DM) equities ended the month higher (MSCI World +2.8% MoM). Amongst DM equities, European bourses fared worst, their proximity to the conflict, and reliance on Russian energy exports exposing them most directly to the fallout from the conflict. Uncertainty about the impact of Russian sanctions, particularly with respect to how it might affect exports of Russia’s significant commodity production, remained a key driver of asset prices. The price of Brent crude oil rose briefly above US$130/bbl during the month (the first breach of that level since 2007), but as negotiations between Russia and Ukraine ushered in the prospect of a negotiated settlement, panic-buying of oil subsided somewhat and Brent crude oil ended the month 7% higher at US$108/bbl. Elevated energy prices saw the S&P 500 energy sector lead the way for a second consecutive month and the sector (along with utility companies) remains the only one in positive territory for 2022 (+39% 1Q22/YTD).
Emerging market stocks (EMs) had another torrid month (MSCI EM -2.3% MoM) and, much like in February, the fortunes of the various EM countries were starkly different. The MSCI Russia Index (constituted from foreign-listed Russian companies) was marked down to zero and trading in the stocks was suspended. Even though a limited amount of trading in domestically listed Russian stocks resumed in the latter part of March, there remains material uncertainty around when, if ever, foreign investors will be able to participate in the trading of Russian securities. China was the other major blot on the EM copybook in March. Sentiment turned considerably negative on Chinese companies in March on uncertainty about whether the Chinese government would support Russia’s invasion of Ukraine. The prospect of sanctions being extended to China left foreign investors in Chinese companies scrambling to avoid a similar outcome to that experienced by Russia’s foreign investors. By mid-month, the Nasdaq Golden Dragon Index of US-listed Chinese companies had lost one-third of its value. The stocks recouped some of their losses as the Chinese government stepped in to restore some calm, announcing an easing of regulatory crackdowns, which had rattled investors for the past year, while promising to support property and technology companies. However, the Chinese market rebound was hampered by the rollout of some of China’s most severe lockdown restrictions since the start of the pandemic and its markets ended the month with significant losses (Hang Seng China Enterprises Index -9.7% MoM, Golden Dragon China Index -12.3% MoM). Elsewhere in EMs, the story was a positive one, with stock markets in Brazil, India, and South Africa all closing March higher (+6.1%, +4.0%, and +1.5% MoM, respectively).
Global central banks were also very much in focus during March. The US Federal Reserve (Fed), hiked rates for the first time since 2018 (as expected) and Fed chair, Jerome Powell, delivered a message suggesting that Fed members were becoming incrementally bearish about 2022 economic growth and inflation prospects, requiring them to accelerate rate hikes and bring forward the shrinking of their balance sheet as they ramped up their fight against inflation. The European Central Bank (ECB), delivered a similar message, also guiding to an accelerated shift from accommodative to restrictive monetary policy as concerns around the lingering effects of elevated inflation trumped concerns around slowing economic growth. The hawkish shift in monetary policy catalysed a meaningful spike in global yields, with US 10-year government yields breaching 2.5% intra-month, before ending March 0.5% higher at 2.34%.