February saw a reversal of some of the strong gains made in the prior month, with both global equity and bond markets falling during the period. Somewhat paradoxically investor sentiment was negatively impacted by strong economic data releases (especially a bumper US jobs report), as markets reverted to the ‘good news’ is ‘bad news’ playbook. Essentially, good news for the economy (and in particular employment) implies more persistent inflation, which infers higher for longer central bank interest rates, which is broadly bad news for markets. We also saw higher than expected inflation indicators coming out of US and Europe and subsequent ‘hawkish’ (tighter policy) rhetoric from the Federal Reserve (Fed) and European Central Bank (ECB). If markets started to price in a ‘soft landing’ in January, they moved to expecting a ‘no landing’ (no slowdown) in February. While economic uncertainty is high at present, we did think that markets may have got ahead of themselves in January given the likelihood of slowing economic activity, due to the accumulation of monetary policy tightening, and ‘stickier’ inflation ahead which will limit the ability of central banks to cut interest rates.
Global equity markets (-1.9%) lost some ground on the month. The threat of higher for longer interest rates weighed on the US stock market (-2.4%) and to some extent emerging markets (-4.7%). In comparison, Europe ex-UK (+1.4%) stocks and UK (+1.9%) stocks continued their strong rallies seen in January, posting a positive return for the month and taking their respective year-to-date performances to +8.5% and +6.1%. In terms of style, there was little difference between growth stocks (-2.5%) and the more value / cyclically (-3.1%) oriented equities. This was to some extent also reflected in the mixed sector performance, with information technology (-0.4%) and industrials the best performing areas. At the other end of the spectrum, materials (-5.8%), real estate (-5.7%) and utilities (-5.2%) sectors trailed the most.
Within fixed income markets, the expectation that central banks will need to tighten policy further and a decrease in risk appetite meant all areas generated negative returns. Looking at the detail, global government bond prices fell (-1.1%), on higher interest rate expectations. Global investment grade credit (-2.4%) generated a negative return over the month as spreads widened, and at the risker end of the credit spectrum the same was true with global emerging market debt (-2.2%) and global high yield (-1.2%) also declining during February.
In terms of real assets, the more interest rate sensitive property and infrastructure markets underperformed equities over the month with the global listed infrastructure (-5.1%) and global Real Estate Investment Trust’s index (-4.4%) both down sharply over the period. Commodities (-4.7%) were also down on the month. In contrast to January, industrial metals (-9.1%) were the weakest area due to doubts about the impact of China’s reopening, closely followed by gold (-5.2%) which itself was hindered by a stronger US dollar. Energy (-3.2%) was also weak with further declines in natural gas (taking year to date declines to -36.2%) due to warmer weather in Europe.
|INDEX||END JANUARY VALUE||END FEBRUARY VALUE|
|DJ Ind. Average||34086.04||32656.70|
|£ Base Rate||3.5||4.0|
This month’s values quoted as at 28/02/2023. The above values are sourced from Bloomberg and are quoted in the relevant currency.
Sign up to our updates
Clients of Nedbank Private Wealth can get in touch with their private bankers directly to understand how their portfolios are responding to market events or call +44 (0)1624 645000 and speak to our client services team.
If you would like to find out more about how we help manage clients’ investments, please also contact us on the number above. Or you can get in touch using the links to the forms towards the end of this page.
Investments can go down, as well as up, to the extent that you might get back less than the total you originally invested. Exchange rates also impact the value of your investments. Past performance is no guide to future returns. Any individual investment or security mentioned here may not be suitable, and is included for information only and is not a recommendation. You should always seek professional advice before making any investment decisions.