Market Summary | January 2022

MARKET OVERVIEW

Subsequent to a positive end to 2021, global markets struggled in the first month of the year, challenged primarily by prospective interest rate hikes and geopolitical tensions in Ukraine.

The key focus for investors worldwide continues to be the impact that inflation will have on markets. This has seemingly created favourable market conditions for value stocks over the last month, with value displaying monthly outperformance of over 7.4% relative to growth according to the respective MSCI ACWI Value and Growth indices in local currency terms.

This is only the second time since the inception of the index that Value has outperformed growth in excess of 5%.

There’s surging prices and a bullish outlook for Brent and Crude Oil

United States

The US has been facing high levels of both inflation and wage growth, which has driven the Federal Reserve to adopt a more hawkish stance. While there has been no rate hike yet, the Federal Reserve’s forward guidance suggests that an increase will occur within the next few months, which is in-line with current market expectations.

The annual inflation rate accelerated to 7% in December, a fresh high since June 1982, but in line with market expectations.

The S&P 500 Index (USD) returned -5.26%
The Dow Jones (USD) returned -3.48%

Asia

Emerging and Asian markets fared somewhat better with monthly returns of -1.8% and -3.8% respectively.

Beijing has been preparing for the 2022 Winter Olympics, starting on 4 February, amid strict Covid restrictions that will effectively create an ‘Olympic bubble’ to separate it from the rest of the city.

In China, GDP rose 1.6% in Q4 2021, above the expected 1.1% rise, with the yearly rate also coming in ahead of expectations at 4.0%.

The Bank of Japan left interest rates unchanged at - 0.10% during its January meeting. It also stressed that it would maintain its ultra-loose monetary policy even as its global counterparts seek to exit from crisis-mode policies.

The Hong Kong Hang Seng PR Index (HKD) returned 1.73%
The Nikkei 225 PR Index (JPY) returned -6.22%
The Shanghai Shenzhen 300 PR Index (RMB) returned -7.62%

Europe

In the UK, the FTSE 100 recorded its second consecutive monthly increase to end January up 1.08%. One of the few markets to post a positive return in January.

Official statistics released last month showed the UK headline rate of inflation now stands at its highest level since March 1992, with survey data pointing to further cost pressures in the pipeline.

Rising prices across the food, hospitality, household goods and clothing sectors were all key drivers of the increase, while fuel prices also remained at recent high levels. With gas and electricity bills set for a further sharp hike in April, some economists are now predicting that the CPI rate is likely to hit 7% by the spring.

The UK’s FTSE 100 PR Index (GBP) returned 1.08%
The German Dax (EUR) returned -2.60%

Australia

The RBA left the cash rate unchanged at 0.1%, as widely expected, and decided to stop the A$275 billion bond buying program with the final purchases to take place on February 10. The board emphasized that the halt in quantitative easing did not imply a near-term hike in interest rates as it was still prepared to be patient.

The Australian share market closed out January 2022 with the S&P/ASX 200 losing -6.4% with eight out of the eleven sectors within the Index finishing lower. Specifically, Energy was the standout sector with a return of +7.9%, whilst Utilities (+2.6%) and Materials (+0.8%) also finished positive. A heavy decline in the Information Technology sector (-18.4%) and Health Care sector (-12.1%) led what was a dismal month for the broader market.

The Energy sector was boosted by surging prices and a bullish outlook for Brent and Crude Oil in light of various tailwinds for the sector such as tight supply, geopolitical tensions and reduced fear around future lockdowns.

Once again, the Information Technology sector suffered substantial losses as investors rotated from growth stocks. The catalysts included rising rates along the yield curve and several central banks indicating forward guidance of tightening monetary policy and quantitative easing to combat inflationary pressures.

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