Market Wrap – Feb 2022

A tough end to the month for share markets
  • After a strong end to 2021, share markets were rattled in January on concerns about inflation, larger rapid monetary tightening by the US Federal Reserve and fears of a Russian invasion of Ukraine.
  • International shares finished the month down -5.1% (hedged) and -2.2% (unhedged) on a weaker AUD. Similarly, after some wildly volatile negative days towards the end of the month, Australian shares finished down -6.5%.
  • For international shares, the selloff was primarily focussed on growth stocks, particularly in sectors that had benefitted during the pandemic, such as technology, as investors considered that revenue growth may taper in the future. Fear of rising financing costs on the back of future interest rate rises also harmed sentiment.
  • Emerging markets outperformed developed markets returning 1.2% supported by signs that China was gradually easing policy.
Inflation overshoots
  • The US economic rebound since the pandemic recession has continued, although Omicron dented activity in January.
  • Consumer inflation in the US shot up in December, its highest level since 1982, likely ending arguments against the case for higher interest rates.
  • January’s US Federal Open Market Committee (FOMC) meeting confirmed expectations that the US Federal Reserve would start to raise rates in March and commence quantitative tightening by reducing bond holdings.
  • Similarly, Australia’s inflation surprised on the upside again for the December quarter. The RBA’s recent meeting announced an end to bond buying, but despite Governor Phillip Lowe emphasising the ‘historic opportunity’ to delay tightening the cash rate to get as close to full employment as possible, the market started to price in rate rises for this year.
AUD falls and oil price rises
  • The Australian dollar fell over the latter part of the month as expectations of Fed tightening increased.
  • Oil prices surged over the month as concerns built that Russia may invade Ukraine, impacting key supply chains. The oil price rise also added to fears that rates would rise sooner.
Major asset class performance (%)
Asset classes 1 month 12 months 5 years (pa)
Australian shares -6.5 9.6 8.6
International shares (hedged) -5.1 18.6 12.5
International shares (unhedged) -2.2 27.3 15.1
International emerging markets (unhedged) 1.2 1.0 9.9
International small companies (unhedged) -4.5 14.2 11.8
Global listed property -6.1 23.9 6.1
Cash 0.0 0.0 1.1
Australian fixed interest -1.0 -3.5 3.0
International fixed interest -1.6 -2.6 2.9

Source: https://investmentcentral.ioof.com.au/home/home-article/Market-Watch-January-2022

Share this:

Disclaimer: The information contained in this document is based on information believed to be accurate and reliable at the time of publication. Any illustrations of past performance do not imply similar performance in the future. To the extent permissible by law, neither we nor any of our related entities, employees, or directors gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of information contained in this newsletter. This information is of a general nature only. It is not intended as personal advice or as an investment recommendation, and does not take into account the particular investment objectives, financial situation and needs of a particular investor. Before making an investment decision you should read the product disclosure statement of any financial product referred to in this newsletter and speak with your financial planner to assess whether the advice is appropriate to your particular investment objectives, financial situation and needs.