Market Summary | February 2022

MARKET OVERVIEW

Global markets were battered over the month of February as geopolitical fears evolved into a reality in Ukraine. As expected, the conflict between Russia and Ukraine commanded the attention of investors, dampening confidence across the globe.

Despite this, Australia is one of the most defensive markets in this environment. The ASX by its makeup is skewed to short-duration assets which are beneficiaries of both inflation & rising rates. This can be seen in the relative performance of the ASX vs other markets over the last few months.

The conflict between Russia and Ukraine commanded the attention of investors.

United States

Russia’s invasion of Ukraine has caused volatility in global stock markets and caused energy prices to rise, with the Brent crude price at over $100 a barrel at the end of February, putting additional pressure on already high global energy costs.

Central bankers stated that the war in Ukraine will affect the world economy across a variety of channels from higher prices to dampened spending and investment, though it is unclear what the ultimate impact will be.

In the US, Annual inflation accelerated to 7.5% in January, the highest since February of 1982 and well above market forecasts of 7.3%, as soaring energy costs, labour shortages, and supply disruptions coupled with strong demand weigh.

The S&P 500 Index (USD) returned -3.14%
The Dow Jones (USD) returned -3.53%

Asia

China announced target rates for key economic indicators for 2022 at is annual parliamentary – GDP growth target of “around 5.5%”, unemployment rate in cities of “no more than 5.5%” and a consumer price index of “around 3%”.

China's annual inflation rate fell to 0.9% in January from 1.5% a month earlier and compared with market forecasts of 1%. This was the lowest reading since September 2021, as the cost of food dropped the most in four months.

Toyota, Honda and Mazda halted exports to and production in Russia, citing difficulties in procuring parts and logistical hurdles.

The Hong Kong Hang Seng PR Index (HKD) returned -4.58%
The Nikkei 225 PR Index (JPY) returned -1.76%
The Shanghai Shenzhen 300 PR Index (RMB) returned 0.39%

Europe

The Russian invasion of Ukraine has added extra pressure to energy supply and prices as Europe relies heavily on Russian energy. Germany also suspended the Nord Stream 2 gas pipeline project, a gas pipe connecting Russian gas to Germany. This is significant because Germany essentially shut down its nuclear power stations opting for gas via the new pipeline.

In the UK, the base interest rate increased to 0.50% in February, as expected with the central bank expecting inflation to increase further in coming months, to close to 6% in March, before peaking at around 7.25% in April.

The UK’s FTSE 100 PR Index (GBP) returned -0.08%
The German Dax (EUR) returned -6.53%

Australia

The RBA left the cash rate unchanged at 0.1% as widely expected. The board stated that the global economy was continuing the recover from the pandemic, but it expects inflation to rise on the back of higher petrol prices and energy costs.

The Australian share market finished February 2022 with the S&P/ASX 200 rebounding +2.14% and seven out of eleven sectors finishing higher. In particular, the Energy sector (+8.6%) led the Index higher with Consumer Staples (+5.6%) and Materials (+5.2%) also performing well. The Information Technology sector (- 6.6%) continued its fall.

The Energy sector was driven higher by surging oil prices amid the geopolitical tensions between Russian and Ukraine. Meanwhile, Consumer Staples performed strongly as investors looked for defensive exposure, with the Materials sector also finishing positively due to surging commodity prices. The Information Technology sector continued its slide as volatility and impending worldwide interest rate rises provided a headwind for growth stocks. Overall, the catalysts for the month were the geopolitical issues in Ukraine as the war and sanctions continued to intensify. This resulted in market volatility as investors mulled the effects on worldwide monetary policy response and inflationary concerns.

Market Returns (last 12 Months)

The above graph summarises the performance of the major financial markets and gives you an indication of how these markets performed over the last 12 months. The graph does not reflect your actual portfolio performance.

*Source: Lonsec Research Pty Ltd