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.