COMMENTARY ON PORTFOLIO PERFORMANCE – QUARTER 4 2022
Global stocks finished 2022 with a flat quarter after a tough year. Inflation showed signs of abating in the US and in Europe, and in the case of the latter, fell for the first time in 17 months in November although still above Central Bank target levels. Arguably the most painful move in markets has been the sharp decline in government bond prices. We know that equities can provide a bumpy ride but the unusually large sell-off in government bonds, alongside falling stock prices, left undiversified investors with no port in the storm. Potential rate cuts forecasted in 2024 will be priced in well before then and could potentially help returns from government bond indices. At this stage a mild recession may ensue but if that happens, bond default rates may rise only moderately. Our contention remains that it is important to remain diversified across a wide range of asset classes. Volatility is likely to remain but may provide some interesting opportunities in the year ahead.
MARKETS IN QUARTER 4 2022
Global stocks closed the year with a drop of more than 13%, the poorest year since 2008. The Eurostoxx 50 was up 14.6% however as energy supply fears recede. China appears to be rolling back on its Covid restrictions and is also providing positive signals through various stimulus measures although the spread of Covid there may dampen the reopening somewhat. Sector wise, defensive segments of the market, including consumer staples, financials, industrials and healthcare, held up best while interest-rate-sensitive sectors, including real estate and communication services struggled.
Rising yields on foot of central bank interest rate rises meant that 2022 was the toughest year for bond investors in recent history. For the first time in 48 years there were two consecutive negative years in US Treasuries. A welcome recovery in European Bond prices came in Q4. Corporate bonds outperformed.
New lettings and rent reviews in the majority of sectors are proving beneficial for landlords. There continues to be good demand for high calibre office space in sought-after locations and the occupier base has broadened beyond the tech and pharma sectors. A higher interest rate environment can affect the commercial property market and present liquidity risks to investors at the time when access is most needed.
Brent Crude Oil is down to levels not seen since before the start of the year, on foot of a weaker industrial outlook. As the dollar has weakened slightly Gold may turn up aided by a re-opening of China where it is in high demand for jewellery.