After a difficult 2022 for investors, 2023 has begun by offering a welcome change with stocks rising and inflation rates declining. But why exactly was 2022 such a challenging year for international markets?
The past twelve months have seen a significant decline in the global stock market, causing investors trillions of dollars in losses. The bond market has also been tumultuous, leading to instability and unpredictability. The fluctuations in currency and commodities have created a volatile environment, adding to the overall uncertainty.
This market instability has been a cause for concern for many investors and traders, who are closely monitoring the situation and making adjustments to their portfolios. The turbulence has also raised questions about the broader economy and the potential impact on businesses and consumers. Despite the challenges, some experts believe market correction could present new opportunities for those willing to take calculated risks.
Nevertheless, it’s important to remember that investing always carries some level of risk and that it’s crucial to research and seek professional advice before making any investment decisions.
The primary factors contributing to the recent market instability have been the ongoing conflict in Ukraine, and the inflationary pressure created as the world emerges from the pandemic.
The value of U.S. Treasuries and German bonds, considered to be the standard in global borrowing markets and safe-haven assets in uncertain times, have declined by 17% and 25%, respectively, in dollar terms.
Jeffery Gundlach, the CEO of DoubleLine Capital and known as the “Bond King” in financial circles, stated that the market conditions were so unfavourable at certain points that his team found it challenging to trade for days at a time.
Gundlach explained that “there has been a buyer’s strike” due to the persistent decrease in prices. Nevertheless, given the circumstances, this cautious approach is understandable.
In the emerging markets, Egypt’s devaluation of its currency exceeded 36%, while Ghana’s cedi has plummeted by 60%, putting it among countries such as Sri Lanka, Russia, and Ukraine that have defaulted. Despite being down significantly from its June highs, Russia’s rouble remains the third-best performing currency in the world, sustained by the capital controls imposed by Moscow. The rouble experienced a significant drop initially due to the invasion of Ukraine.
Turkey’s inflation and monetary policy issues have led to a further decline of 29% in the value of the lira. Still, they have also resulted in an influx of local investment into the country’s stock market. This has made Turkey’s stock market the top performer globally, even when measured in dollars, with a remarkable 80% increase in value.
And that is a high-level view of some of the lows and highs of 2022. At Northern Cross Wealth Management, these are only a fraction of the influencing factors to how we help you establish and manage your wealth on a global playing field. We believe that everything is connected, and we cannot make decisions in isolation from current events.
If you’d like to chat about your portfolio or something you’ve seen recently, please feel free to reach out to Michael and get in touch.
