2022 has been arguably the most volatile year for investors ever, and for good reason: it saw trillions of dollars scraped off global markets, bond market meltdowns, whipsawing currency and commodity prices, and the collapse of some few crypto empires.
Calculating the final figures is helpful but far from providing the full picture.
Yes, global equities seem to be down $14 trillion and on track for their second-worst year ever, but the volatility in that period has been abnormal due to roughly 300 interest rate hikes and three rallies of 10% or more.
The Ukraine conflict and raging inflation as the world’s economies recovered from the pandemic have been the key causes, but China has remained constrained by it.
German and U.S. Treasury bonds, which have historically served as safe haven investments during difficult economic times, shed 16% and 24% of their value, respectively, in dollar terms.
The “Bond King” of DoubleLine Capital, Jeffery Gundlach, claims that at times the market circumstances were so bad that trading was all but impossible for his team for days on end.
He claimed that there had been a buyer’s strike, which was understandable given that prices had only lately started to rise.
The drama began as soon as it became evident that COVID wouldn’t shut down the entire economy once more and that the U.S. Federal Reserve, the most powerful central bank in the world, was serious about hiking interest rates.
Ten-year Treasury yields increased from less than 1.5% to 1.8%, deducting 5% from the MSCI world stock index in just January.
The current yield is 3.68%, stocks have plunged 20%, and oil prices rose 80% before falling completely. Despite having stated at this time last year that it was unlikely to move, the Fed has delivered 400bps of increases and the European Central Bank a remarkable 250bps.
The yen gained this week as a result of the dollar.
Turkey’s currency has lost another 28% of its value in developing markets due to inflation and financial policy issues, but its stock market has outperformed all others globally.
Hard-pressed Egypt’s currency depreciated by more than 36%. Ghana followed Sri Lanka in default, causing the cedi to fall by 60%. The Russian rouble, which is backed by Moscow’s capital controls, is still the second-best performing currency in the world despite having fallen significantly from its June highs. Initially destroyed following the invasion of Ukraine.
Robert Alster, the chief investment officer at Close Brothers Asset Management, echoed the sentiments of many when he noted the brutal beating the pound and British mortgage market endured when Liz Truss’s short-lived government dabbled in an unsupported spending spree.
Ten-year gilt yields increased by almost 100 bps, and the pound dropped by 9% in a matter of days. Such movements are uncommon in large markets.
According to seasoned CMC Markets analyst and expert Michael Hewson, if something is offered incorrectly, it’s not surprising if it consumes like a cup of cold medicine.
The tech titans have lost $3.6 trillion as a result of the rate increase. While Alphabet’s Google (GOOGL.O), as well as Amazon (AMZN.O), are down 40% and 50%, respectively, Facebook (META.O) & Tesla (TSLA.O) have also suffered losses of more than 60%.
Due to indications that the zero-COVID policy’s days are numbered, Chinese equities (.dMICN00000PUS) have mounted a late comeback, but they are still down 25%, and emerging market ‘tough currency’ government debt will suffer its first-ever back-to-back losses.
Almost everywhere, excluding the Middle East, has seen a decline in early public offerings and bond sales, while commodities have continued to be the best-performing asset class.
Although mostly a result of the conflict in Ukraine, which at one point drove prices up by 140%, natural gas upwards of a 50% increase is still the strongest overall in that group.
Brent has lost all of the 80% it gained in the first quarter, along with wheat and corn, due to mounting concerns about the impending recession and the West’s decision to cease purchasing Russian oil.
