January 2023 Market Review

A look back on markets in January when stocks posted strong gains.

The month in summary:

Stock markets started 2023 on a strong footing with gains across global equities. China’s re-opening after dropping the zero-Covid policy in late December helped propel the advance. Signs that inflation is easing from its autumn highs in several major regions also supported sentiment, amid hopes central banks may be close to the peak of their rate hiking cycle. Emerging markets outperformed their developed counterparts. In fixed income markets, bond yields fell (meaning prices rose). Commodities saw a negative return for the month. 

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.


US equities made robust gains in January. Investors’ focus on inflation – which cooled for the sixth successive month in December – remains sharp. The headline consumer price index (CPI) dropped to 6.5% from 7.1% mainly due to energy and food cost moderation. In combination with a stronger-than-expected GDP print of 2.9% (seasonally adjusted annual rate), the inflation data led investors to position for slower rate rises from the Federal Reserve from here. Risk appetites picked up, despite expectations of a slightly softer earnings season compared to Q4 2021.

Economic data elsewhere was mixed but encouraging. Industrial activity – as measured by the S&P Flash Composite PMI – improved somewhat in January (to 46.6 from 45.0) but remains in contraction territory. (The PMI indices are based on survey data from companies in the manufacturing and services sectors. A reading below 50 indicates contraction, while above 50 signals expansion.) Employment data was more supportive, with weekly jobless claims below expectations. At 186,000, the weekly jobless claims was the lowest since April and well below expectations of 205,000.

The reversal in sentiment touched the majority of the market, with almost all sectors stronger over the month. Traditionally defensive areas of utilities, consumer staples and healthcare, were snubbed in favour of more growth oriented names. The strongest gains were linked to tech or consumer discretionary spending. Travel and auto stocks were amongst the month’s strongest gainers, while entertainment and media stocks also advanced. 


Eurozone shares were among the best regional performers in January. Top performing sectors included economically-sensitive areas of the market such as information technology and consumer discretionary. Real estate also enjoyed a rebound after poor performance in 2022. Within consumer discretionary, luxury goods stocks were particularly strong following the news of China’s economic reopening. Energy was the weakest sector while defensive areas like utilities and healthcare also underperformed.

Eurostat data showed the eurozone economy eked out 0.1% of growth quarter-on-quarter in Q4, a slowdown from 0.3% growth in Q3. Forward-looking indicators raised hopes that the eurozone may continue to avoid recession. The flash eurozone composite purchasing managers’ index for January registered a seven-month high, coming in at 50.2 after 49.3 in December.

Inflation edged lower again in December. The annual inflation rate was 9.2% compared to 10.2% in November. The highest contribution to inflation came from food, alcohol and tobacco, with energy in second place as natural gas prices remained below their elevated levels of 2022. European Central Bank President Christine Lagarde warned that further interest rate rises would still be needed to return inflation to the 2% target.


UK shares posted gains in January although the advance was more muted than in some other regions. The consumer discretionary and financials sectors were among the top gainers. Laggards included more defensive sectors such as consumer staples and healthcare. Economically sensitive areas of UK equities outperformed in line with other markets. This occurred amid growing hopes that the US Federal Reserve might be in a position to ‘pivot’ to cutting interest rates in late 2023.

UK small and mid cap equities (smids) outperformed as domestically focused consumer stocks did particularly well, partly amid signs the UK economy is holding up better than expected. Consumer stocks generally delivered much more encouraging trading updates than had been feared. When combined with very low expectations this drove some very strong share price performances from the retail, travel & leisure and housebuilding sectors. Domestically focused banks also performed well, although more broadly the banking sector benefited from its emerging markets exposure amid China reopening hopes.

Recent UK macroeconomic data  suggested underlying growth has been more resilient than previously thought, partly helped by an easing of energy prices, driving hopes for a milder-than-feared recession. The latest updates on monthly GDP for November revealed that the UK economy unexpectedly grew in November, expanding by 0.1%.


The Japanese stock market rose throughout January, reversing the decline seen in December. The total return for the month was 4.4% in local terms. The yen initially strengthened against the US dollar, in line with the trend seen from November, before giving back some of the gain in the second half of the month.

Investors’ attention remained focused on the Bank of Japan, following the surprise adjustment to the yield curve control policy which was announced in mid-December. In early January, with 10-year bond yields testing the Bank of Japan’s new upper limit, there was some speculation that more changes could be made at the January policy committee meeting. In the event, policy was left unchanged and discussion moved instead to the likely candidates to replace Mr Kuroda as governor of the Bank of Japan. The prime minister, Mr Kishida, is likely to nominate the new governor in the first half of February.

The debate continued over inflation and whether it will be sustained at a level above the Bank of Japan’s 2% target. Preliminary surveys of the spring wage negotiations suggest that moderate wage growth is probable, but it may not be sufficiently high to provide a definitive trigger for any policy change at the central bank.

At the very end of January, the corporate results season began for the quarter ending in December. Only a minority of companies had reported before the end of the month. Early indications suggest a positive tone, especially as service companies should see a benefit from improved demand after the final lifting of Covid restrictions and a resumption of travel subsidies.

Asia (ex Japan)

Asia ex Japan equities recorded a positive performance in January. Chinese shares achieved robust gains after Beijing loosened its Covid-19 restrictions that have constrained the country’s economic growth since early 2020. Government measures to support the country’s property market and a loosening of the regulatory crackdown on China’s technology companies also bolstered investor sentiment.

Other Asia Pacific markets also gained after Hong Kong and China resumed quarantine-free travel, signalling the end of China’s zero-Covid policy which had kept borders closed for nearly three years. Shares in South Korea and Taiwan achieved significant growth in the month on renewed investor optimism, while gains in Hong Kong were slightly more muted. In Hong Kong, technology, travel and consumer stocks were particularly strong. Singapore also ended the month in positive territory after an upbeat global forecast for Asian markets helped allay investor fears of an economic slowdown. Property, financial and industrial stocks performed particularly well in the month.

The Philippines, Thailand, Indonesia and Malaysia also achieved solid growth. India was the only index market to end the month in negative territory, amid a sell off by foreign investors and investor caution as economic growth stalls.

Emerging markets

Emerging market (EM) equities benefited from January’s risk-on environment. Signs of cooling inflation in the developed world fuelled optimism that interest rates may soon peak, with potentially positive consequences for growth. Developments in China also boosted investor sentiment. These included the ongoing re-opening of the economy, easing of regulatory pressure on the internet sector, more policy support for the real estate sector and better-than-expected Q4 GDP growth of 2.9% year-on-year. The MSCI EM Index outperformed the MSCI World Index over the month.

Czech Republic was the best-performing index market as a state-owned power utility company rallied strongly. Mexico followed close behind, despite a slowdown in economic activity indicators, including weaker manufacturing data, and a slight rise in inflation. Meanwhile, Taiwan and Korea both outperformed, supported by strong returns in their tech sectors, as the outlook for global growth and trade improved. Chile and Peru performed better than the index too, helped by higher copper prices as optimism about China’s re-opening drove industrial metals prices higher. While Hungary was ahead of the index, and Poland, just behind, both markets continued to rebound following months of poor performance in 2022 after Russia’s invasion of neighbouring Ukraine.

Brazil underperformed. Macroeconomic data softened while inflation rose and anti-government riots in Brasilia, the country’s capital, damaged government buildings. South Africa lagged the index amid an ongoing energy crisis, with the state-owned power supplier announcing permanent rolling blackouts for at least the next two years. Thailand, Indonesia and Malaysia posted returns behind the index, as did Qatar and Saudi Arabia, with the latter two impacted by generally weaker energy prices.

India generated negative returns amid allegations of fraud and share price manipulation at a major conglomerate. Turkey was the biggest underperformer as investors booked profits after very strong returns in recent months.

Global Bonds 

Global government bond yields fell in January (i.e. prices rose) on encouraging news on inflation – particularly out of the US. The month was light on central bank meetings, but the market began anticipating a slower pace of rate hikes by the Federal Open Market Committee (FOMC). The Bank of Canada hiked rates by 25 basis points (bps) but signalled a pause in its hiking cycle, while the Bank of Japan made no further adjustments to its yield curve control policy, despite a sharp rise in core inflation. 

Credit markets did well and outperformed government bonds both in the US and Europe and across both high yield and investment grade markets. (Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade.) Risk sentiment improved as signs of moderating inflation and better-than-expected growth (especially across the eurozone and China) saw investors dial back some of their worst recessionary fears.

Meanwhile activity data in the US pointed to further weakness. The better-than-expected fourth quarter GDP was driven by a significant build up in inventories, while other near-term and forward looking indicators, including retail sales and industrial production, fell.

Headline inflation rates in both the US and the eurozone continued to ease, driven by retreating energy prices. While there was a modest uptick in month-on-month US core inflation, the general disinflationary trend here is clear. In contrast, core inflation across the eurozone has remained sticky and is likely to prompt a further hawkish response from the European Central Bank (ECB).

The US 10-year yields fell from 3.88% to 3.51%, with the two-year falling from 4.42% to 4.21%. Germany’s 10-year yield declined from 2.57% to 2.29%. The UK 10-year yield fell from 3.67% to 3.34% and 2-year dropped from 3.56% to 3.46%. 

The US dollar was weaker against most other developed market currencies. The Australian dollar was the strongest performer among G10 currencies, following much stronger than expected inflation and supported by optimism around China’s re-opening. There was broad-based strength across emerging market currencies, given indications that US interest rates would soon peak.

Convertible bonds benefitted from the equity market tailwinds, but once more failed to convince in their upside participation. The Refinitiv Global Focus gained 4.8% in US dollar terms, lagging the advance of the MSCI World index. January turned out a good month for primary market activity. We saw USD 5.4 billion of new paper was issued with a good regional split between the US and Europe. Convertibles are trading about 1% below their fair value with Asia remaining the cheapest region.


The S&P GSCI Index recorded a negative performance in January. Energy and livestock were the worst-performing components of the index, while industrial metals and precious metals achieved strong gains. Within energy, the price of natural gas was sharply lower in the month, Within industrial metals, the price of lead fell in January, while zinc, aluminium and copper all achieved robust gains. Within agriculture, wheat and cocoa prices fell in January, while sugar and coffee recorded significant price growth. Within precious metals, the price of gold was significantly higher than a month earlier, while silver fell back slightly.

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Monthly Markets Review – August 2022

A review of markets in August, when developed market shares fell as central banks reaffirmed their focus on inflation.

The month in summary:

Developed market equities resumed their declines in August as it became clear that further substantial interest rate rises may be needed to tame inflation. Emerging market shares posted a modest gain. Bond yields rose, meaning prices fell, with the UK underperforming other major markets.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.


US equities declined in August after Federal Reserve (Fed) chair Jerome Powell said the US central bank would need to keep monetary policy tight “for some time” in a bid to tackle soaring inflation. This dashed market hopes that further interest rate rises would be more modest and led to sharp falls in share prices and volatile trading throughout the month. 

US Congress passed the Inflation Reduction Act which aims to reduce inflation by curbing the deficit, as well as investing in domestic sources of clean energy.

US inflation, as measured by the consumer price index (CPI), increased by 8.5% year-on-year in July, down from 9.1% in June. The US jobs market remains strong with non-farm payrolls growing by a larger-than-expected 528,000 in July.

By sector, information technology, healthcare and real estate experienced some of the sharpest declines. Energy stocks achieved a robust performance amid ongoing strong demand and a curtailment of supplies following Russia’s invasion of Ukraine.

Semiconductor stocks were particularly weak in August amid rising inventories of some types of chips, as well as some ongoing supply-chain issues. Consumer durables stocks also saw significant declines in the month as rising prices prompted consumers to cut back on household items.


Eurozone shares fell in August amid ongoing worries over inflation, particularly in the form of high gas and electricity prices. In the MSCI EMU index, energy was the only sector to post a positive return, while underperforming sectors included real estate, healthcare and information technology. Some pharmaceutical stocks were hit by worries over potential liabilities related to US litigation around heartburn drug Zantac.

The energy crisis across Europe intensified amid worries over supply and high costs. Russia said it would halt the Nord Stream 1 pipeline, which supplies natural gas to Germany, for three days from 31 August (as of early September, the pipeline has not reopened). Meanwhile, several of France’s nuclear reactors were offline for longer than expected after maintenance. Further upward pressure on power prices has come from this summer’s drought as low water levels on the Rhine have affected the delivery of coal to coal-fired power plants.

Inflation continued to rise in the eurozone with annual consumer price index (CPI) inflation estimated to be up 9.1% in August. Industrial producer prices for June were up 35.8% in the eurozone compared with June 2021. Minutes from the European Central Bank’s (ECB) July meeting indicated that policymakers remain concerned about inflation and that a further rise will come at the meeting in September.


UK equities fell over the month. A number of large cap equities held up relatively well led by the energy and banking sectors, in line with the trend seen since the beginning of 2022. Major oil companies are anticipated to benefit from an ongoing inflationary/stagflationary economic environment, while banks are seen as a beneficiary of higher interest rates.

Consumer focused areas underperformed. This is amid fears that rising energy prices and interest rates will severely pressure the consumer, with UK households facing an income squeeze on multiple fronts in coming months. Fears around the outlook for the domestic economy more widely – and the country’s fiscal position – were also reflected in a very poor performance in sterling, although in the context of continuing strength in the dollar.

Political uncertainty weighed on sentiment. The resignation of UK prime minister (PM) Boris Johnson has put a block on further major policies being introduced until a new leader of the ruling Conservative Party is elected. As a result, questions remained over how any new PM might support consumers and businesses amid an intensifying energy crisis.

In addition to consumer exposed areas performing poorly, traditionally economically sensitive ones (due to growing fears around recessionary outcome in many developed economies), and those parts of the market offering high future growth potential (due to higher rates) also lagged. These factors combined drove a poor performance from UK small and mid cap equities over the period.

The Office for National Statistics estimated that the UK economy contracted by 0.6% in the month of June, after 0.4% growth in May. A dip was expected given the extra bank holiday to celebrate Her Majesty the Queen’s Platinum Jubilee. However, consensus expectations were too pessimistic, forecasting a contraction of -1.3%, which would have been more in-line with past Jubilees.


The Japanese stock market rose in the first half of August driven by strong quarterly results and an anticipated peak in US inflation. The yen resumed its weakening trend against the US dollar, after the brief reversal seen in the second half of July.

Investors were generally optimistic over some early signs, or hope, that US inflation may soon be approaching its peak. Conversely, but equally encouraging, are signs that Japanese inflation may be becoming entrenched at a moderate, but sustainable rate, after decades of deflation. Nationwide consumer price data released in August showed core inflation (excluding only fresh food) had edged up again to 2.4% in July.

The first estimate of GDP growth for the second quarter was also released. The quarter-on-quarter annualised rate of 2.2% was slightly lower than consensus expectations but the detailed breakdown was interpreted more positively with some resilience in consumption and capital expenditure. 

Aside from macro data, the main influence on individual stocks came from the results announcements for the March to June quarter, which were completed in August. Although profit momentum slowed from the previous quarter, overall results were again ahead of expectations and profit margins appear to have remained resilient so far, despite increasing cost pressures. With many companies having made conservative forecasts for this fiscal year, there is scope for upward revisions around the next quarterly results announcements.

Asia (ex Japan)

Asia ex Japan equities were weaker in August with declines in Hong Kong and South Korea offsetting gains in India and Indonesia. Hong Kong was the weakest market in the MSCI AC Asia ex Japan index in August amid losses among Chinese carmakers. Vehicle deliveries suffered from supply chain disruptions and weak consumer confidence, undermining the corporate earnings outlook. Shares in South Korea also ended the month in negative territory as concerns over the outlook for interest rates and fears over recessions in many of the major world economies weakened investor sentiment.

Singapore and Thailand both ended the month in negative territory. Shares in China were flat in August on concerns over rising interest rates, as countries around the world battle soaring inflation. The alarming spread of Covid-19 throughout China also weakened sentiment, prompting fears of further lockdowns as the country continues to pursue a policy of zero-Covid. Investor sentiment was also weakened after new data released during the month showed that factory activity continued to contract in the world’s second largest economy following strict Covid-19 lockdowns and a record heatwave during the summer.

Thailand, India and Indonesia all achieved modest gains and ended the month in positive territory. Gains achieved in Malaysia and the Philippines were more muted.

Emerging markets

Emerging market (EM) equities posted a marginally positive return in August, significantly outperforming developed markets. This was despite weakness towards month-end as global recessionary fears increased, and as the US Federal Reserve (Fed) maintained a hawkish tone.

Turkey was the best performing market in the EM index, delivering double-digit returns. The central bank issued a surprise interest rate cut during the month, despite inflation near 80%. Brazil outperformed as opinion polls narrowed ahead of October’s presidential election. Thailand and Chile also finished ahead of the index, as did India which benefited from improved macroeconomic data releases, including an easing in inflationary pressure. Despite weaker oil prices over the month, both Saudi Arabia and Qatar outperformed.

China delivered a small positive return, but slightly underperformed the index. While monetary and fiscal policies announced during the month were supportive, a resurgence in Covid-19 infections prompted further lockdowns, and macroeconomic data continued to point to sluggish domestic demand.

Hungary underperformed as the central bank hiked interest rates again – this time by 100bps to 11.75% – and raised the required reserves ratio from 1% to 5%. Taiwan and Korea both lagged the index with currency weakness weighing on returns against a backdrop of ongoing hawkishness from the Fed and concerns about global growth. Geopolitical tension, as US Speaker Nancy Pelosi visited Taiwan despite protests from Chinese authorities, was a further drag on Taiwan’s performance.

The Czech Republic and Poland were the weakest EM markets, negatively impacted by the deteriorating outlook for energy supply. Not only has the European gas crisis escalated but local coal shortages in Poland ahead of winter threaten the country’s power production. Coal is the main fuel for Polish power production and the government’s ban on Russian imports came into effect in August.     

Global Bonds 

Government bond yields rose sharply, meaning prices fell, as inflation remained elevated and central banks reaffirmed a commitment to reining in price increases.

The Federal Reserve (Fed) held its annual conference at Jackson Hole against a backdrop of multi-decade high consumer price inflation (CPI) across major economies. While concerns of an economic downturn are rising, Fed Chair Powell nevertheless stuck to a hawkish message.

Powell said the Fed would not “pivot”, or shift course from raising rates, though the US may see slower growth for a “sustained period”. Data, particularly the labour market, has so far been remarkably resilient, although the housing market continued to deteriorate. The US 10-year Treasury yield rose from 2.64% to 3.13%, with the two-year rising from 2.90% to 3.45%.

The UK gilt market underperformed most other global government bond markets. Inflation hit 10% in July, which was higher than the market expected and raised expectations of a faster pace of rate hikes. Political uncertainty and the much anticipated fiscal response to the energy crisis also weighed on the market. The Bank of England (BoE) raised interest rates by 0.5% to 1.75% at the start of the month.

Like the Fed, the BoE is prioritising the need to curb inflation. Governor Andrew Bailey predicted the UK will fall into a long recession later this year. The UK 10-year yield increased from 1.86% to 2.80% and the two-year from 1.72% to 3%.

In Europe, inflation remained high and members of the central bank’s executive board, speaking at Jackson Hole, said policy would need to remain tight for an extended period. Germany’s 10-year yield rose from 0.82% to 1.53%.

Corporate bonds saw negative returns though US investment grade (IG) and euro high yield outperformed government bonds. (Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade).

In emerging markets (EM), corporate bonds saw modest positive returns led by high yield. Local currency and hard currency sovereign bonds were generally weaker. EM currencies were mixed versus the US dollar.

Convertible bonds protected well against the equity market headwinds with the Refinitiv Global Focus index shedding just -0.5% in August. The month saw US$7 billion in new convertible bonds coming to the market which translates into a relatively normal month in terms of new issuance. Despite the previous lack of supply since the start of the year, convertible valuations continue to be cheap, reflecting the general ‘risk off’ mood within the market.


The S&P GSCI Index recorded a negative performance in August, driven by weaker energy and precious metal prices. Energy was the worst-performing component of the index, with sharply lower prices for unleaded gasoline, crude oil and Brent crude offsetting prices gains for natural gas and heating oil. Within the precious metals component, the price of silver was sharply lower, while the decline in the price of gold was more modest. Within the industrial metals component, there were significant price falls for nickel and aluminium, while declines in the price of lead and copper were more muted. Conversely, the price of zinc increased during August.

Agriculture was the only component of the index to achieve a positive result in August, with sharply higher prices for corn, coffee and cotton. The price of wheat, cocoa and sugar also rose in the month.

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Quarterly Markets Review – Q2 2022

A look back at markets in Q2 when shares suffered steep declines and bonds also came under pressure.

The quarter in summary:

Both shares and bonds were under pressure in the second quarter as investors moved to price in further interest rate rises and an increased risk of recession. Inflation continued to move higher in many major economies during the quarter. Among equities, the MSCI Value index outperformed its growth counterpart but both saw sharp falls. Chinese shares proved a bright spot as prolonged lockdowns were lifted in some major cities.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.


US equities fell in Q2. Investor focus was trained on inflation and the policy response from the Federal Reserve (Fed) for much of the period.

The Fed enacted its initial rate hikes during the quarter and signalled that there would be more to come. Even so, the central bank admitted the task of bringing inflation down without triggering a recession would be challenging.

The US economy looks robust, but signs of a slowdown are emerging. The ‘flash’ US composite purchasing managers’ index (PMI) eased from 53.6 to 51.2 in June. The services component eased from 53.4 to 51.6, but the manufacturing output deteriorated from 55.2 to a two-year low of 49.6. Only twice has this fallen by more than 5.6 points; during the pandemic in 2020 and the financial crisis in 2008. (The PMI indices, produced by IHS Markit, are based on survey data from companies in the manufacturing and services sectors.) PCE inflation, the Fed’s preferred price gauge, was unchanged at 6.3% y/y in May.

Declines affected all sectors although consumer staples and utilities were comparatively resilient. There were dramatic declines for some stocks, most notably in the in the media & entertainment and auto sectors.


The second quarter saw further steep declines for eurozone shares as the war in Ukraine continued and concerns mounted over potential gas shortages. Higher inflation is also denting consumer confidence, with the European Central Bank (ECB) poised to raise interest rates in July.

Top performing sectors included energy and communication services while information technology and real estate experienced sharp falls.

Continued disruption to gas supplies due to the war in Ukraine saw Germany move to phase two of its emergency energy plan. The next phase would involve rationing gas to industrial users, and potentially households as well. A flash estimate from Eurostat signalled inflation at 8.6% in June, up from 8.1% in May, with energy the biggest contributor to the rise.

Ongoing elevated inflation means the ECB is poised to lift interest rates at its meeting on 21 July, with a further rise likely in September. Concerns over the higher cost of living and possibility of recession saw the European Commission’s consumer confidence reading fall to -23.6 in June, the lowest level since the early stages of the pandemic in April 2020.


UK equities fell over the quarter. Economically sensitive areas of the market performed poorly towards the end of the period amid rising recessionary risks. Large cap companies held up relatively well as traditionally defensive areas of the market outperformed, including the telecoms, healthcare and consumer staples sectors.

In contrast, UK small and mid caps (SMIDs) were negatively impacted by a relatively high weighting to UK consumer focused companies. Here, fears around the impact of high inflation and cost of living crisis on future earnings weighed heavily on stock valuations.

Consumer discretionary sectors, such as retailers and housebuilders, performed particularly poorly, in line with the trend seen across many other developed markets grappling with high levels of consumer price inflation (CPI). In tandem with this, many UK SMIDs suffered severe valuation declines as per the trend for growth companies in general to have suffered against the backdrop of rising interest rates.

UK chancellor Rishi Sunak unveiled additional measures to help households facing higher energy bills this autumn. These are expected to offset some of the impact of higher energy prices later this year, particularly for the hardest hit UK households.

The Bank of England increased its official rate by a combined 50 basis points (bps) with a further two consecutive 25 bps hikes to take the so-called “Bank Rate” – to 1.25%. The Bank continued to warn of higher inflation, and in June raised its estimate for the peak CPI from 10% to 11% for October.


The Japanese stock market ended the quarter lower. The yen weakened sharply against the US dollar, breaching the 130 level for the first time in 20 years.

Japan’s equity market in the quarter was primarily driven by news flow on monetary policy and currency markets, together with concerns over the growing possibility of a US recession. Comments from the Fed ahead of April’s interest rate increase pointed to a widening interest rate differential with Japan materialising earlier than expected. This view was reinforced by the Bank of Japan’s own policy meeting on 18 April, confirming no change in policy.

The yen’s weakness coincided with a reversal of several other factors, especially mobile telecom charges. This became evident in the inflation numbers released in May, which showed core CPI (excluding only fresh food) jumped to 2.1% as the significant reduction in mobile phone charges finally dropped out of the year-on-year numbers.

Corporate results announcements began in late April for the fiscal year ended in March. The bulk of companies reported in May, after the Golden Week holiday period. Given the current macro background and global uncertainty, there were fewer positive surprises than recent quarters, and some companies made overly conservative forecasts for the coming year. Overall, however, the tone of results and guidance was still slightly better than expected.

Asia (ex Japan)

Asia ex Japan equities registered a negative return in the second quarter. Investor sentiment turned increasingly downbeat amid concerns that rising global inflation and ongoing supply chain problems, accentuated by the war in Ukraine, could tip the world into recession.

South Korea was the worst-performing market in the MSCI Asia ex Japan index in the quarter, with financials, technology and energy stocks particularly badly hit amid fears of a global recession.

Stocks in Taiwan were also significantly lower on fears that rising inflation and global supply chain problems would weaken demand for its technology products. Indian stocks also declined over the quarter as global volatility, rising inflation and soaring energy prices weakened investor sentiment towards the market.

Share prices in the Philippines, Singapore and Malaysia all recorded sharp declines in the quarter, mirroring the share price falls seen in global markets, while declines in Indonesia and Thailand were less severe.

China was the only index market to end the quarter in positive territory, as Covid-19 lockdown measures started to be relaxed. Investor sentiment towards the country was also boosted after government data showed that factory activity in China grew in June.

Emerging markets

Emerging market equities experienced a fall in Q2, with US dollar strength a key headwind. This was despite outperforming developed market peers by a wide margin.

The Latin American markets of Colombia, Peru and Brazil were among the weakest markets in the MSCI Emerging Markets Index. A combination of rising concern over a global recession, domestic policy uncertainty, and later in the quarter weaker industrial metals prices, contributed to declines in equities and currencies.

The emerging European markets of Poland and Hungary both underperformed by a wide margin, as geopolitical risks stemming from Russia’s invasion of neighbouring Ukraine persisted. The central banks in both countries increased the pace of policy tightening, while in Hungary the government announced windfall taxes on banks and other large private companies.

South Korea and Taiwan lagged as the outlook for global trade deteriorated. Conversely, China was the only emerging market to generate a positive return over the quarter. Lockdown measures in certain cities were eased and macroeconomic indicators began to pick up. Meanwhile, additional economic support measures were announced. The authorities also outlined a significant reduction in quarantine for close contacts and visitors to China, which should help to ease supply issues even if the zero-Covid policy seems set to remain in place.    

Global Bonds 

Bonds continued to sell off sharply, with yields markedly higher amid still elevated inflation data, hawkish central banks and rising interest rates. Bonds rallied into quarter-end amid rising growth concerns, slightly curtailing the negative returns.

Data throughout the quarter showed inflation rates in major economies continuing to run at multi-decade highs, with various central banks raising interest rates and others signalling their intention to do so soon.

The quarter also saw mounting concerns over growth prospects, and even potentially recession later this year. Towards the end of the period economic indicators began to reflect moderating or slowing activity.

The US consumer price index increased by 8.6% year-on-year to May, accelerating unexpectedly, and showed price rises broadening across sectors. The Fed implemented a series of hikes, raising the policy rate by 75 basis points (bps) in June for the first time since 1994. At the same time, Fed officials cut 2022 growth forecasts. The US 10-year bond yield rose from 2.35% to 2.97% and the two-year yield from 2.33% to 2.93%.

European yields were volatile as the central bank indicated it would end asset purchases early in Q3 and raise rates soon after. This sparked a pronounced sell-off in Italian yields in June. The EECB sought to calm concerns, calling an extraordinary meeting to discuss an “anti-fragmentation” programme likely entailing some form of support for heavily indebted nations.

The German 10-year yield increased from 0.55% to 1.37% with Italy’s up from 2.04% to 3.39%, hitting as high as 4.27% in June.

In the UK, the Bank of England (BoE) implemented further rate hikes, bringing the total to five in the current cycle, raising its inflation forecast to 11%. The UK 10-year yield increased from 1.61% to 2.24% and two-year rose from 1.36% to 1.88%.

Corporate bonds suffered in the broad bond market sell-off, underperforming government bonds as spreads widened markedly. With mounting concerns over the economic outlook, high yield credit was particularly hard hit. (Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade).

Emerging market (EM) bonds suffered significant declines. EM currencies weakened as the US dollar performed well, benefiting from broad risk aversion.

The Refinitiv Global Focus convertible bond index shed -12.2% in US dollar terms. That meant convertible bonds protected investors from some of the equity market losses. New issuance of convertible bonds remains lacklustre. There was just US$5 billion of new convertibles coming to the market in the second quarter.


The S&P GSCI Index achieved a positive return in Q2 as higher energy prices offset sharp price falls in the other components of the index. Energy was the best performing component amid rising demand and supply constraints due to the ongoing conflict in Ukraine.

Industrial metals was the worst performing component, with sharp falls in the price of aluminium, nickel and zinc. Copper and lead prices were also significantly lower in the quarter. Within the agriculture component, prices for wheat, corn and cotton were all lower. In precious metals, the price of silver was significantly lower in the quarter, while the decline in the price of gold was less pronounced.

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Monthly Market Review – April 2022

A look back at markets in April, which saw a shift in interest rate expectations with markets now expecting faster rate rises.

The month in summary:

Equity markets saw further falls in April. Global shares were hit by the ongoing war in Ukraine, lockdowns in China, continued supply chain disruptions, and expectations that US interest rates could rise swiftly. US shares were sharply lower after disappointing updates from some previously fast-growing companies. Bond yields continued to rise (meaning prices moved lower) as markets anticipated significant interest rate hikes.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.


US equities fell sharply in April. Economic data showed signs of weakening while inflationary pressures continued to prompt the Federal Reserve (Fed) into a more aggressive path of interest rate hikes. Several high-profile US tech firms were notably weaker on supply-chain concerns and lacklustre results.

Inflation – as measured by headline CPI – increased 1.2% over the month of March, a sharp pick-up from February. This took the annual rate of inflation to 8.5% from 7.9%, its highest since December 1981. Higher fuel prices contributed significantly to the elevated number.

The Fed signalled a 50 basis point hike would take place in May in a step up in the central bank’s inflationary countermeasures. Meanwhile, industrial activity was broadly weaker, consumer confidence down, and initial data showed a contraction of GDP in Q1.

Weakness was widespread. Consumer staples were more resilient, while most other sectors declined. Consumer discretionary companies, unsurprisingly given the damage to consumer confidence, were amongst the weakest over the month. Car manufacturers were especially hard-hit. Communication services also declined. Netflix, notably, fell sharply after its net loss of subscribers in Q1, the first quarterly decline in users since 2007.  


April saw further declines for eurozone equities as the war in Ukraine continued and there was no let up in inflationary pressures. Annual eurozone inflation reached 7.5% in April, up from 7.4% in March. Russia halted gas supplies to Poland and Bulgaria after the two countries refused to comply with a decree from Russia that payment must be made in roubles.

The best performing sectors included energy, amid ongoing strong demand, and communication services, where telecoms stocks fared well given their defensive profile. Information technology, consumer discretionary and industrials were the weakest sectors. Companies in these sectors tend to be among the most affected by supply chain disruptions and concerns over consumer confidence.  

The eurozone economy grew by 0.2% quarter-on-quarter on Q1 and the unemployment rate dipped in February to 6.8%, from 6.9% in January. Forward-looking indicators painted a mixed picture: the services purchasing managers index (PMI) hit an eight-month high amid an upturn in tourism, but manufacturing PMI reached a 22-month low. (The PMI indices, produced by IHS Markit, are based on survey data from companies in the manufacturing and services sectors.)

As expected, Emmanuel Macron won the French presidential election.


April was another marginally positive month for UK equities. The FTSE 100 index remains one of the few key national benchmarks in positive territory for 2022 in the year to date (local currency terms).

Typically defensive groups provided most of the impetus for the market, notably the pharmaceutical and the consumer staple sectors. Many of these companies are also big dollar earners and received additional support from the strength of the US currency, especially versus a weak sterling. Dollar strength also benefited the energy companies while utilities were in demand given their expected resilience to stagflation, being the combination of slowing growth and accelerating inflation.  

Sterling performed poorly amid fears around the domestic economic outlook. Official data showed the UK economy slowed more sharply than expected in February, when monthly GDP rose by 0.1%, from 0.8% in January. Meanwhile, the annual rate of UK consumer inflation climbed to 7.0% in March from 6.2% in February (consumer price index), its highest since March 1992.

The same fears around the domestic outlook also weighed on domestically focused sectors and UK small and mid-cap equities underperformed as a result. Consumer-facing companies in particular struggled in the face of cost of living concerns, which have raised questions around the ability of some companies to pass on their own rising costs.


After initial weakness, the Japanese stock market drifted sideways to end April 2.4% lower. The yen again weakened sharply against the US dollar in April, breaching the 130 level for the first time in 20 years.

Aside from the ongoing human tragedy unfolding in Ukraine, Japan’s equity market in April was primarily driven by news flow on monetary policy and currency markets. Comments from the US Federal Reserve pointed to a widening interest rate differential with Japan materialising earlier than expected. This view was reinforced by the results of the Bank of Japan’s (BoJ) own policy meeting on 18 April, confirming no change in policy and the maintenance of the existing target of +/– 25bps for the 10-year bond yield.

However, there was some surprise in the degree of commitment to this target shown by BoJ Governor Kuroda. Until the last two months these operations had been extremely rare, and generally only deployed at specific moments of significant market stress. However, Mr Kuroda stated that these fixed-rate operations will be conducted every day throughout May, virtually guaranteeing no rise in bond yields, which quickly pushed the yen down though the psychological 130 level against the US dollar.

On the corporate front, corporate results announcements began in late April for the fiscal year ended in March. The bulk of companies, however, will report in May, after the Golden Week holiday period.

Asia (ex Japan)

Asia ex Japan equities were lower in April as China struggled to contain its worst outbreak of Covid-19. This prompted fears that the subsequent economic stoppages could have a wider impact on the global economy and exacerbate the global supply chain shortages. Shanghai, China’s largest city and home to almost 25 million people, has been in lockdown since the end of March when cases of the Omicron variant started spiking.

Expectations of higher interest rates and the ongoing Russian invasion of Ukraine also weakened investor sentiment during a volatile trading month.

Taiwan was the worst-performing index market during April, with major electronics manufacturers and chip makers slumping due to supply chain disruptions amid the lockdowns in Shanghai and neighbouring cities. Share prices were also sharply lower in the Philippines, South Korea and Singapore in April, while share price declines in China and Hong Kong were less muted.

Indonesia was the only market in the index to end the month in positive territory after ratings agency S&P upgraded the country’s outlook to stable from negative, citing the improvement in Indonesia’s fiscal position.

Emerging markets

Emerging market (EM) equities were firmly down in April, amid a pick-up in risk aversion globally. Increasingly hawkish sentiment from the US Federal Reserve, US dollar strength, concern over the impact of Covid lockdowns in China, and Russia’s ongoing war in Ukraine all weighed on the outlook. Poland, which saw its gas supply from Russia cut off, was the weakest market in the index, while neighbouring Hungary also lagged.

Industrial metals sold off amid increased uncertainty over the demand outlook from China, which was negative for net exporters Peru, Brazil and South Arica. In Peru, protests in response to soaring food and energy inflation, also weighed on the outlook. Mexico underperformed as the cyclical outlook deteriorated and policy concerns returned, while a weaker outlook for global trade was negative for Taiwan and South Korea.

By contrast, Turkey generated a positive return and was the best-performing index market. Net energy exporters Saudi Arabia, Qatar and Kuwait also finished in positive territory. China outperformed but posted a negative return as concern over the growth outlook increased and lockdowns implied supply chain disruption may be prolonged. This was despite some modest monetary easing during the month.

Global Bonds 

Bond yields continued to rise in April, resulting in further negative returns (yields and prices move in opposite directions), amid continued high inflation and expectations of significant interest rate hikes.

Investors continued to weigh up the uncertainty of the war in Ukraine and the resulting disruption to supply chains. Concerns over the global growth outlook have begun to mount too, with China maintaining stringent lockdowns to tackle Covid-19. 

US consumer price inflation accelerated to 8.5% year-on-year in March though the core personal consumption expenditure index fell marginally to an annualised 5.2%, from 5.3%.

The Fed maintained a hawkish stance. Policy minutes indicated it is considering a relatively quick reduction in its balance sheet. Later in the month, Fed Chair Jay Powell signalled a potential 0.5% rate increase in May.

The US 10-year Treasury yield increased from 2.35% to 2.94% and the two-year from 2.33% to 2.73%. The two to 10-year yield curve (two-year minus 10-year yield) inverted briefly early in the month.

The UK 10-year yield rose from 1.61% to 1.91% and the two-year increased from 1.36% to 1.61%. Bank of England (BoE) Governor Andrew Bailey acknowledged UK policymakers are walking a “tightrope” between inflation and the danger of the shock to household incomes that higher interest rates could represent.

In Europe, the German 10-year yield rose from 0.55% to 0.94% and the Italian 10-year yield rose from 2.04% to 2.77%. Europe saw continued surging inflation and speculation around monetary tightening. European Central Bank President Christine Lagarde repeated the message that asset purchases will end early in Q3 and rates could rise this year, but the governing council will maintain “optionality”.

Corporate bonds saw negative total returns and underperformed government bonds. High yield saw the more significant spread widening though spreads remained below the highs seen earlier this year. (Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade).

Emerging market (EM) bonds saw negative returns too, particularly sovereign debt, while corporate credit was more resilient. EM currencies weakened as the US dollar performed strongly, particularly in Latin America and central and eastern Europe. The Chinese yuan also declined notably. 

Convertible bonds re-found some of their traditional protective qualities in April. The Refinitiv Global Focus convertible bond index shed -4.1% in US dollar terms, implying downside protection of c.50% compared to the MSCI World’s fall of c.8%. New issuance of convertible bonds remains lacklustre with a volume of just over US$10 billion since the start of the year. This compares to a volume of more than US$60 billion for the same period last year.


The S&P GSCI Index achieved a positive return in April as higher prices in the agriculture and energy components offset weaker prices for industrial metals, livestock and precious metals. Energy was the best performing component of the index during the month amid rising demand, as the global economy normalises after the Covid-19 crisis, and supply curbs due to geopolitical issues such as Russia’s ongoing invasion of Ukraine.

Within the agriculture component, prices for corn and wheat were sharply higher on continuing fears that the ongoing war between Russia and Ukraine could hinder supplies (Russia and Ukraine account for around 30% of global wheat exports).

In industrial metals, the price of aluminium was sharply lower in April. Copper and lead also saw significant price declines in the month, while price falls for nickel and zinc were more muted. Within precious metals, the price of silver was significantly lower in April, while the decline in the price of gold was less pronounced.

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Quarterly Markets Review – December 2021

A look back at Q4 2021, when developed market shares posted strong returns despite the emergence of the Omicron variant and the prospect of tighter central bank policy.

  • Global equities were stronger in the final quarter of 2021 as investors focused on economic resilience and corporate earnings.
  • In bond markets, government bonds outperformed corporate bonds. Markets began to price a faster pace of interest rate rises in the US.
  • Commodities saw a positive return as industrials metals gained.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.


US equities rose in Q4. Overall gains were robust despite a weaker November, during which fears over rising cases of the Omicron variant of Covid-19 and the speed of the Federal Reserve’s asset tapering had weighed. By year-end, these worries had largely subsided, while data continue to indicate that the economy overall remains stable and corporate earnings are robust.

US economic growth slowed sharply in the third quarter amid a flare-up in Covid-19 infections, but with activity since picking up, the economy remains on track to record its best performance since 1984. GDP increased at a 2.3% (annualised), up from the 2.1% pace estimated. This was still the slowest quarter of growth since the second quarter of 2020, when the economy suffered an historic contraction in the wake of tough mandatory measures to contain the first wave. Unemployment fell to 4.2%, the lowest since February 2020, from 4.6% in October. The participation rate rose slightly but is still about 1.5 percentage points lower than the pre-pandemic level.

Tech as a sub-sector was one of the strongest performers over the quarter, with chipmakers especially strong. Real estate also performed well, as investors expect e-commerce to continue to grow and drive further demand for industrial warehousing. Energy and financial names made more muted gains over the quarter.


Eurozone shares made gains in Q4, as a focus on strong corporate profits and economic resilience offset worries over the new Omicron variant. A number of countries did introduce restrictions on sectors such as travel and hospitality in order to try and reduce the spread of the new variant. The flash composite purchasing managers’ index hit a nine-month low of 53.4 for December, as the service sector was affected by rising Covid cases. However, equity markets drew support from early data indicating a lower risk of severe illness.

Utilities were among the top performers with IT stocks also registering strong gains. Technology hardware and semiconductor stocks performed particularly well. The luxury goods sector also performed very strongly, recovering from the summer sell-off which was sparked by a focus on “common prosperity” in China. Meanwhile, the communication services and real estate sectors saw negative returns.

The quarter was marked by volatile gas prices which contributed to higher inflation. The eurozone’s annual inflation rate reached 4.9% in November, compared to -0.3% a year earlier. The European Central Bank said it would scale back bond purchases but ruled out interest rate rises in 2022.

Germany’s coalition talks reached a conclusion. In December, Olaf Scholz of the Social Democrats (SPD) succeeded Angela Merkel as chancellor. His party is in a coalition government with the Greens and Free Democrats (FDP).


UK equities rose over the quarter. Encouraging news around Omicron during December saw a number of economically sensitive areas of the market largely recoup the sharp losses they had sustained in the initial sell-off in late November, such as the banks. Some areas reliant on economies reopening, however, such as the travel and leisure and the oil and gas sector were unable to make up November’s losses and ended the quarter lower.

A number of defensive areas outperformed, including some of the large internationally diversified consumer staples groups. However, expectations China would maintain a zero tolerance approach to Omicron continued to impact sentiment towards a number of other globally exposed large cap companies. These consistently underperformed over the quarter, despite some uncertainties around increased regulatory oversight in China having abated.

Some domestically focussed area were particularly volatile and not just the travel and leisure companies directly disrupted by the latest Omicron related restrictions. The share prices of UK consumer facing sectors such as retailers and housebuilders yo-yoed inline with expectations around the timing of a rise in UK base rates, which came in December. Many retailers grappled with supply chain disruptions, resulting in some high profile profit warnings, despite strong demand.


After declines in October and November, the Japanese stock market regained some ground in December to end the quarter with a total return of -1.7%. The yen was generally weaker in the quarter.

Japan held a general election in October. Expectations for the ruling Liberal Democratic Party’s (LDP) election performance under Mr Kishida’s leadership were modest at best. However, in the event the LDP lost only 15 seats and retained a solid majority in its own right. With the election out of the way, the political focus shifted to a substantial fiscal stimulus package. This includes direct cash handouts to households in an effort to kick-start a consumption recovery in the first half of 2022.

From late November, renewed short-term uncertainty over the new Covid variant temporarily obscured the increasingly positive outlook for Japan. Japan inevitably imported its first known case of Omicron in December, but overall infection rates remain remarkably low, as they had throughout 2021.

The US Fed’s discussion of accelerated tapering led to some short-term weakness in stock prices in December, despite the fact that such a move is very unlikely to be followed by Japan in the foreseeable future. The Bank of Japan’s own Tankan survey, released in December, contained no real surprises, although the overall tone was reasonably upbeat. There was some evidence of a slight pick-up in corporate inflation expectations over the next two years. Meanwhile, the current inflation rate crept back into positive territory as several one-off factors begin to drop out, but there still seems little chance of Japan experiencing a short-term inflation spike as seen elsewhere.

Among other economic data released in December, there was a genuine positive surprise in the strength of the rebound in industrial production as auto output began to recover from the temporary weakness caused by the global semiconductor shortage.

Asia (ex Japan)

Asia ex Japan equities recorded a modest decline in the fourth quarter. There was a broad market sell-off following the emergence of the Omicron variant of Covid-19 which investors feared could derail the global economic recovery.

China was the worst-performing market in the index in the quarter, with share prices sharply lower, along with neighbouring Hong Kong, on investor fears that new lockdown restrictions would be instigated following the rapid spread of the new Covid-19 variant. Share prices in Singapore also ended the fourth quarter in negative territory as investors continued to track developments surrounding the new Omicron variant. There were also fears that the city-state’s government might have to scale back some recently relaxed curbs on activity. India and South Korea also ended the quarter in negative territory although the declines in share prices were more modest.

Taiwan and Indonesia were the best-performing index markets in the fourth quarter and the only two index markets to achieve gains in excess of 5% in the period. In Taiwan, positive economic data and a rise in exports boosted investor confidence, with chipmakers performing well. Share prices in Thailand, the Philippines and Malaysia also ended the quarter in positive territory.

Emerging markets

The MSCI Emerging Markets Index lost value in Q4 and underperformed the MSCI World Index, with US dollar strength a headwind. Turkey was the weakest index market, amid extreme volatility in the currency. The central bank lowered its policy rate by a total of 400bps to 14%, despite ongoing above-target inflation which accelerated to 21.3% year-on-year in November. With the lira coming under significant pressure, President Erdogan announced an unorthodox scheme to compensate savers for lira weakness, in an effort to reduce the use of US dollars.

Chile lagged the index as leftist Gabriel Boric was elected president. Brazil underperformed as the central bank continued to hike rates in response to rising inflation; the policy rate was increased by a total of 300bps during the quarter. Meanwhile, concerns over the fiscal outlook, and political uncertainty ahead of October 2022’s presidential election, also weighed on sentiment.

Russia lagged as geopolitical tensions with the West ratcheted up, amid a build-up of Russian troops on its border with Ukraine. China also finished in negative territory as concerns over slowing growth persisted, exacerbated later in the quarter by uncertainty created by rising daily new cases of Covid-19.

By contrast, Egypt finished in positive territory and was the best performing index market. Peru and the UAE also posted double digit gains in dollar terms. Taiwan, aided by strong performance from IT stocks, Indonesia and Mexico all recorded solid gains and outperformed.

Global Bonds 

Markets were buffeted over the quarter by persistent elevated inflation, hawkish central bank policy shifts and the emergence of the Omicron Covid-19 variant. In bond markets, 10-year government yields were largely unchanged. Yields followed a downward trajectory for most of the quarter before reversing in the final weeks of the year as sentiment improved. Yield curves flattened, with shorter-dated bonds hit as central banks turned more hawkish.

Most notably, US Federal Reserve (Fed) rhetoric turned increasingly hawkish in November. Chair Jay Powell and other members of the policy committee suggested tapering could be accelerated, which it was in December, and that they may stop referring to inflation as “transitory”.

The US 10-year Treasury yield was little changed for the quarter, from 1.49% to 1.51%. It reached 1.7% in October amid elevated inflation and expectations of policy tightening, then a low of 1.36% in early-December amid fears over the Omicron Covid-19 variant. The US 2-year yield increased from 0.28% to 0.73%.

The UK 10-year yield fell from 1.02% to 0.97%, dropping sharply in early November as the Bank of England (BoE) unexpectedly elected not to raise rates. The BoE did, however, raise rates in December and with fears over the Omicron variant fading, yields rose. The 2-year yield sold-off, from 0.41% to 0.68%.

Germany’s 10-year yield was little changed, from -0.17% to -0.19%, but this reflected a late sell-off with the yield having fallen below -0.40% in December. Italy’s 10-year yield increased from 0.86% to 1.18%. Eurozone inflation picked up considerably, rising to the highest level since 2008 and to a near 30-year high in Germany. European Central Bank President Christine Lagarde broadly affirmed dovish messages, but comments from other ECB officials were more hawkish.

Corporate bonds lagged government bonds for the quarter. In investment grade, the US market saw modestly positive total returns (local currency), but Europe weakened. US high yield was the standout performer, with positive returns and narrowing spreads. Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade.

In emerging markets, local currency bond yields rose, particularly where central banks continued to raise interest rates amid elevated levels of inflation. Central and eastern Europe underperformed. EM currency performance was mixed, influenced by shifting risk sentiment, despite the prospect of higher interest rates.

EM hard currency bonds declined, with high yield significantly weaker, though investment grade sovereign bonds saw positive returns.

Global equities enjoyed a strong quarter with the MSCI World index up 6.8% but convertible bonds could not benefit from the equity market tailwind. The Refinitiv Global Focus index of balanced convertible bonds finished the last quarter of 2021 with a disappointing loss of -1.9%. Throughout the quarter, $25 billion of new paper hit the market bringing the total of new issuance to US$160 billion for 2021.


The S&P GSCI Index recorded a moderately positive return in the fourth quarter despite a sharp decline in the price of natural gas. The industrial metals component was the best-performing segment in the quarter as the global economic recovery gathered pace. There were strong gains in the prices of zinc, nickel, lead and copper.

The agriculture component also achieved a positive return in the quarter, with robust gains recorded for coffee, cotton, corn and Kansas Wheat. Precious metals also gained in the quarter, with modest price gains for siler and gold.

The energy component recorded a modest decline in the quarter, with a sharp fall in the price of natural gas offset by modestly higher prices for unleaded gasoline, crude oil and Brent crude.  

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.