Developments in financial markets - February 2022
Written and accurate as at: Mar 14, 2022 Current Stats & Facts
Australian Equities
Despite the geopolitical headwinds the Australian markets bounced back in February with the S&P/ASX300 Accumulation returning 2.09% for the month, bringing the 1 year rolling return to 10.25%. From a size perspective, the large cap ASX 50 and ASX 100 indexes ended the month up 1.60% and 1.30% respectively. While the ASX MidCap 50 index and the ASX Small Ordinaries Accumulation index both underperformed ending the month down -0.80% and -0.01% respectively.
Once again, Information technology lagged the market for a third month in a row ending the month down -1.99%, bringing the 3 month return to -26.07%. Energy, Consumer Staples and Materials all benefited from stronger prices ending the month up +8.13%, +7.39% and +6.32% respectively.
International Equities
February painted a very different picture for global markets with Investors piling into safe-haven investments such as US government bonds, gold and the US dollar, after Russia launched the invasion of Ukraine.
As for the major US markets, the S&P returned -2.99%, the NASDAQ was down – 3.35% and the Dow Jones -3.29%, bringing annual returns to 16.39%, 4.92%, and 11.59% respectively. This was the second month of declines for the broader US Market (S&P500), its longest losing streak since October 2020 and the biggest two-month drop since March 2020.
Once again, the larger end of the market, particular the tech sensitive stocks rerated off increased volatility, threatening their already stretched valuations. In response to weak earnings guidance, shares in Facebook owner Meta Platforms dipped 24.3%. While shares in PayPal shed 26.7%.
The Europe 600 STOXX reported a loss of -3.36%, the French CAC 40 -4.86%, the German DAX -6.53% and the UK’s FTSE100 ended nearly flat -0.08%.The UK market did benefit of rising commodity prices given its large exposure to energy & mining companies.
Asian markets were somewhat mixed with Japanese Nikkei 225 and the Hong Kong Hang Seng both finishing down, reporting -1.71% and -4.58% respectively. While the Korea KOSPI and Shanghai composite bucking the trend ending up 1.35% and 3.00% respectively.
Fixed Interest
With inflation and interest rates continuing to be the hot topics of the last few months, markets are paying close attention to global central banks’ sentiment and policies.
The Bloomberg AusBond Composite (0+Y) returned -1.21% for the month and -2.13% on a rolling 1 year basis. In international fixed income markets, the Barclays Global Aggregate TR Hedged index returned -1.30% over the month and -3.34% for the rolling 1year. As a quick reminder, there is an inverse relationship between bond yields and bond prices. That is, rising interest rates lead to falling prices and hence negative returns.
The Australian 10 Year yield ended the month at 2.13% adding 24 bps over the month and the US 10 Year yield at 1.83% adding 5bps. While both curves traded higher during the month they moderated post the 24th, off the potential outlook of lower economic growth resulting from Russia/Ukraine tensions and flow on impact to central bank decisions on the path and speed of cash rates.
As mentioned last month, the yield curve continues to display a flatter shape with the market pricing in short term rate rises, but given the level of global debt, longer rates do not expect to reach levels seen prior to the GFC levels for an extended period of time.
Foreign Exchange
Despite the risk off sentiment in the market and increased demand for USD assets,the AUD stood up against the USD, ending the month at 0.7263, up 2.77%.
However, this was not the case against the other major currencies, with the EUR and GBP ending down -0.14% and -0.20% respectively to the USD. A similar story unfolded from the Yen which was somewhat surprising as it is normally seen as a safe haven asset. The USD/JPY ending the month at 115, down -0.10%.
Commodities
Commodities across the board had a strong month with the Bloomberg Commodity Index ending up 6.20%. This brought the 3 month return to 19.58%, and 1 Year to 34.33%.
As mentioned previously, oil benefited off political tensions and impact to future supply with WTI and Brent up 8.59% and 10.72% at US$95.75 and US$100.99 respectively.
Much to Russia’s disappointment, Germany announced the Nord Stream 2 pipeline
would be halted.
Gold, another safe haven was well supported towards the end of the month, ending up 6.22% to US$1908.994