- Global stocks fall 20% in the worst year since the financial crisis
- The bond market has been affected by the increase in rates
- Sharp changes in raw materials and currencies due to rate hikes and war
- Cryptocurrency failures and defaults have added to volatility
LONDON, Dec 22 (Reuters) – Trillions of dollars wiped out of global stocks, bond, currency and commodity market tantrums and the collapse of some crypto empires: 2022 has been perhaps the most turbulent year investors have ever seen. ever seen, and for good reason.
Counting the final numbers is helpful, but it doesn’t even come close to telling the whole story.
Yes, global stocks are down $14 trillion and heading for their second-worst year on record, but there have been nearly 300 interest rate hikes and a trio of rallies of more than 10% in that time, making volatility be monstrous
The main drivers have been the war in Ukraine, combined with rampant inflation as world economies emerged from the pandemic, but China remained shackled by it.
US Treasuries and German bonds, the benchmarks of global lending markets and traditional assets in troubled times, lost 16% and 24%, respectively, in dollar terms.
DoubleLine Capital’s Jeffery Gundlach, dubbed the ‘King of Bonds’ in the markets, says conditions got so bad in places that his team found it nearly impossible to trade for days on end.
“There has been a buyers’ strike,” he said. “And understandably because prices have been going down until recently.”
The drama began as soon as it became clear that COVID was not going to shut down the global economy again and the most influential central bank in the world, the US Federal Reserve, got serious about raising interest rates.
Ten-year Treasury yields rose to 1.8% from less than 1.5%, wiping out 5% of the MSCI World Stock Index in January alone.
That yield is now at 3.68%, stocks are down 20% while oil prices were up 80% before giving it all up. The Fed delivered 400bp of hikes and the European Central Bank a record 250bp, despite last year saying it was unlikely to change at this time.
The dollar this week gave the yen a boost.
In emerging markets, inflation and Turkey’s monetary policy woes have cost the lira another 28%, but its stock market is the best-performing in the world.
Struggling Egypt devalued its currency by more than 36%. The Ghana cedi plunged 60% as it joined Sri Lanka in default. Despite being well below its June highs, Russia’s ruble remains the world’s second best performing currency backed by Moscow’s capital controls. It was initially destroyed after the invasion of Ukraine.
“If you ask me what’s going to happen next year, I really couldn’t tell you,” said Close Brothers Asset Management chief investment officer Robert Alster, who, like many, also pointed to the fall in sterling and British bond markets when the short-lived government of Liz Truss flirted with a splurge of unfunded spending.
Ten-year gilt yields soared more than 100bp and the pound lost 9% in a matter of days, moves the scale of which is rare in major markets.
“If you undersell it, don’t be surprised if it comes down like a cold,” said Michael Hewson, a veteran analyst at CMC Markets.
The rate hike also took $3.6 trillion off the tech titans. Facebook (META.O) and tesla (TSLA.O) both have hemorrhaged more than 60% while Alphabet’s Google (GOOGL.O) and Amazon (AMZN.O) They have fallen respectively by 40% and 50%.
chinese stocks (.dMICN00000PUS) They have staged a late rally on signs that the days of their zero-COVID policy are numbered, but they are still down 25% and emerging market “hard currency” government debt will post its first consecutive loss.
Initial public offerings and bond sales have also tumbled almost everywhere except the Middle East, while commodities have been the best-performing asset class for the second year in a row.
Natural gas’s more than 50% rise is the best overall in that group, though much of it is due to the war in Ukraine, which pushed prices up 140% at one point.
Growing recession concerns coupled with the West’s plan to stop buying Russian oil mean Brent has returned all of the 80% it earned in the first quarter, as has wheat and corn.
The crypto market has been even more chaotic. Bitcoin ends 2022 stripped of its cocktail of cheap money and leveraged gambling.
The preeminent cryptocurrency has lost 60% of its value, while the broader crypto market is down $1.4 trillion, crushed by the collapse of Sam Bankman-Fried’s FTX empire, Celsius, and alleged terraUSD stablecoins. and Moon.
“What has happened in global markets this year has been traumatic,” said EFG Bank chief economist and former deputy governor of Ireland’s central bank Stefan Gerlach.
“But if central banks hadn’t underestimated the rise in inflation so drastically and had to raise interest rates, it wouldn’t have been so catastrophic.”
Reporting by Marc Jones, additional graphics by Vincent Flasseur and Pasit Kongkunakornku; Edited by Emelia Sithole-Matarise
Our standards: The Thomson Reuters Trust Principles.