by Mark Jones
LONDON (Reuters) – Billions of dollars gone up in smoke on international stock markets, crises in bond markets, seesaw fluctuations in currencies and commodities, not to mention the collapse of major players in the world “crypto”: the year 2022 will undoubtedly have been one of the most eventful that investors have known.
A few days before the New Year, the major international stock markets have suffered nearly 14 trillion dollars in losses since the beginning of the year and are heading for their second worst annual performance.
Behind this stock market rout, the war in Ukraine, a breakneck rise in prices and the persistence of the COVID-19 epidemic in China.
US and German government bonds, safe havens in times of crisis, lost 16% and 24% respectively in dollars.
American investor Jeffrey Gundlach, founder of DoubleLine Capital and dubbed in the markets the “king of the bond”, says that conditions were at times so bad that his team found it almost impossible to trade during several days.
“There was a buyers’ strike,” he said. “And that’s understandable because prices have only been falling until recently.”
With the significant rise in rates from the Federal Reserve (Fed), the yield on ten-year Treasuries fell from 1.5% to 1.8% in January alone and the MSCI World index lost 5% .
This yield is now around 3.67%, global equities are down around 20% over the year while oil prices have exploded by 80% before collapsing.
The Fed raised rates by 400 basis points and the European Central Bank by 250 points, a record, even though it judged at the same time last year that a tightening of its monetary policy was unlikely.
The dollar index, which measures the fluctuations of the greenback against a basket of reference currencies, gained nearly 9%. The currency rose 12.5% against the yen, which received an unexpected boost after the Bank of Japan eased its control of sovereign bonds.
On the emerging side, inflation and Turkey’s monetary policy caused the pound to lose 28%, but the country’s stock market achieved the best performance in the world.
Egypt, in great economic difficulties, devalued its currency by more than 36% and Ghana, in default, saw its currency collapse by 60%. The Russian ruble, which initially tumbled after the invasion of Ukraine in March, is the world’s second-best performing currency thanks to Moscow’s capital controls.
Robert Alster, chief investment officer at Close Brothers Asset Management, recalls the massive blow suffered by the pound sterling and the British bond markets with the vagueness surrounding the financing of the draft budget of the government of Liz Truss.
The yield on ten-year gilts rose more than 100 basis points and the pound lost 9% in a few days, movements of a rare magnitude in the main markets.
Soaring interest rates also cost big names in the mighty tech sector $3.6 trillion. Meta Platforms, Facebook’s parent company, and Tesla both fell more than 60% while Alphabet and Amazon lost 40% and 50% respectively. Chinese stocks had a late recovery with the release of the so-called zero COVID strategy but they are still down 25%.
IPOs and bond sales also fell almost everywhere except the Middle East, while commodities were the best performing asset class for a second straight year.
Natural gas posted the strongest growth in this category with growth of more than 50%, which is primarily explained by the war in Ukraine.
Fears linked to the recession and the European Union’s plan to stop all imports of Russian petroleum products from February 5 mean that Brent has lost all of the gains (80%) recorded in the first three months of the year , as well as wheat and corn.
The year 2022 was also turbulent in the cryptocurrency market, where 1.4 trillion dollars soared with the collapse of the FTX empire, the Celsius platform and the stablecoin terraUSD.
Bitcoin, the best-known cryptocurrency, is on track to end 2022 with a 60% decline.
“What has happened in global markets this year has been traumatic,” said Stefan Gerlach, chief economist at EFG Bank and former deputy governor of the Central Bank of Ireland.
“But if central banks hadn’t underestimated rising inflation so dramatically and had to drive interest rates up, it wouldn’t have been so catastrophic.”
(Marc Jones report, with Vincent Flasseur and Pasit Kongkunakornku for the graphs, French version Laetitia Volga, edited by Blandine Hénault)
Copyright © 2022 Thomson Reuters