Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
December performance: It's not all downhill, but we haven’t exited the rollercoaster
Market Rewind
Søren Otto Simonsen
Senior Investment Editor
Summary: The final month of 2022 served as a microcosm of the tough year it’s been on the financial markets. While October and November posted positive returns, December’s red numbers aren’t necessarily an indication that everything is worse, but it is a sign of the volatility we can expect in 2023.
Global equities fell 4.3% in December. Following two months of positive equity returns, December’s performance indicates how tough 2022 has been for equities. The fear of recession keeps looming while inflation, interest rate hikes and increasing global uncertainty ensures that volatility remains.
US -5. 9%. The US equity market ended the year falling almost six percent in December. The performance is driven by the efforts to combat inflation by the Federal Reserve (the US central bank), which invariably leads to increasing interest rates and a tougher business environment. In December, the Fed also argued that they don’t expect any easing of financial conditions (i.e., lower interest rates) until 2024, which is a piece of news that won’t have gone down easily with equity investors.
Europe -3.6%. The European equity performance was slightly better, as it fell 3.6% during December. There are a few different arguments for why the EU index fell less than the US. One is that the European Central Bank eased the pace of its interest rates in the middle of the month. Still, the ECB has indicated that they expect several interest rate hikes in the near future and the fear of recession in the region is still very much in play, which is why the EU was down for the month of December.
Asia -0.4%. The Asian region ended in a slight minus but performed better than all other regions. Despite COVID cases rising in China, the country’s leader, Xi Jinping, has eased the very tough lockdown policy the country previously employed, which is a move that investors may have rewarded as it may lead to a more stable business environment in the country. Apart from that, the general sentiment around the region has been increasingly positive since the beginning of November.
Emerging Markets -1.6%. Emerging Markets fell a bit more than 1.5 percent in December. The region is very much affected by the American central bank policies. The rhetoric of continued increases by the Fed has pulled the region down, while the policy change and easing of Covid restrictions in China may have pulled in a more positive direction.
While every single sector could post positive returns last time around, it is unfortunately the opposite story for December, as all sectors end in red.
Utilities was the best performing sector, and it took a photo finish to determine which side of zero the sector would end on. With winter rolling in and the continued conflict with Russia, utilities such as power and heating remain important to shore up and ensure for the cold months.
Information Technology and Consumer Discretionary ended up in the less fun part of the table, both falling more than eight percent in December. Information Technology has faced tough sledding in 2022 and towards the end of the year, mass layoffs by some of the largest players signalled a need to refocus the sector.
Global bonds fell 1.2% in December. A key driver of this movement is the reaffirmation of central banks’ need to keep increasing interest rates well into the future.
Check out the rest of this month’s performance figures here:
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