The first quarter of 2022 proved to be a very volatile start to the year, brought about by Russia’s invasion of Ukraine and the subsequent sanctions that followed.
Volatility was further bolstered by increasingly hawkish tones by major central banks looking to put an end to decades-high inflation without pushing their economies into recession. Consequently, the MSCI All Country World Index lost 5.7% in the first quarter ending March 2022. These factors have continued to drive market sentiment in April and as such the MSCI All Country World Index has lost a further 2.6% month-to-date (MTD). Both emerging and developed markets have been dragged down with the MSCI World Index losing 2.64%, followed by -2.6% for the MSCI Emerging Markets Index.
Strong US payrolls data and persistent increases in CPI have caused US treasury yields to jump to three-year highs. The US inflation rate came in at 8.5% for March, beating forecasts of 8.4% and marking the highest reading since 1981. This pushed treasury yields up to three-year highs and has opened the door for even more aggressive interest rate hikes from the Federal Reserve.
The final two weeks of March saw a short-lived rally in US stocks, namely the high growth technology names, which pushed the Nasdaq Composite and S&P 500 indices up 3.4% and 3.6% respectively. These gains have since been reversed as markets grow increasingly weary of the effects of tightening monetary policy and ongoing geopolitical risks on global growth. As such, the Nasdaq Composite and S&P 500 have resumed their trend lower and have fallen 5.7% and 2.6% month-to-date respectively.
China’s economic woes continue to get exacerbated by the rise in domestic Covid-19 outbreaks. With the government continuing to stick to its zero-Covid policy there are increased worries that the lockdown could be extended to other major cities and further dampen the cloudy outlook for China’s growth. This coupled with the ongoing global pressures has dragged down Chinese stock markets with the Hang Seng index losing 3.4% month-to-date.
Meanwhile, the UK seems to be showing signs of a slowdown after weaker than expected manufacturing figures dented Britain’s growth outlook. This comes as no surprise given that Russia’s invasion of Ukraine and the commodity shock have hit sentiment globally. The FTSE 100, London’s bluechip index, has remained relatively flat with it gaining 0.4% month-to-date.
The Bloomberg Commodities Index rallied 25% in the first quarter, marking its best performance in close to 32 years. The rally, which already had economic fundamentals going for it, has been exacerbated by the ongoing Russia-Ukraine war. Energy and agricultural prices have been directly affected as Russia plays a major role in these two sectors, whereas precious metals such as gold have been bolstered due to their safe-haven demand. The rally has continued into April with the index advancing a further 2.4% month-to-date. Despite the rally, oil prices have fallen to around the $100 level thanks to the International Energy Agency and the US announcing major releases of strategic reserves.
Locally, the rand has had an outstanding start to the year after strengthening 8.4% in the first quarter against the greenback. The rand’s rally, which has been buoyed by commodity prices and attractive yields, has slowed slightly in April as geopolitical risks and a hawkish Federal Reserve boost demand for the dollar. Despite a stronger dollar, the rand has still managed to gain 0.4% against the greenback month-to-date, followed by 1.3% and 2.1% against the pound and euro respectively.
Local equities also had a strong quarter providing some relief to investors weathering the volatile overseas markets. The FTSE/JSE All Share Index ended the quarter up 4.6% despite heavily weighted Naspers and Prosus weighing down performance. The outperformance was underpinned by resources and financials which advanced 19.0% and 16.7% respectively, whilst industrials lost 3.1%.
The local bourse has since lost ground, in line with its global peers, in April with the All Share index down 1.8% month-to-date. The biggest drag has been financials and industrials with -4.0% and -2.7% respectively, followed by resources with 0.27%. SA listed property also remains on the back foot and has lost 1.3% month-to-date.