Data source: Bloomberg

Global equities were stronger in the final quarter of 2021 as investors focused on economic resilience and corporate earnings.

Sources: JP Morgan, Schröders, Bloomberg.

In the US

• US equities rose in Q4. Overall gains were robust despite a weaker November, during which fears over rising cases of Omicron and the speed of the Fed’s asset tapering had weighed, especially on growth stocks, which continued to get hit until the end of the year.

• Tech as a sub-sector was one of the strongest performers over the quarter, with chip-makers especially strong. Real estate also performed well, as investors expect e-commerce to continue to grow and drive further demand for industrial warehousing.

• Energy and financials remain flatish over the quarter.

In the Rest of the World

• Asia ex-Japan equities recorded a modest decline in the fourth quarter. There was a broad market sell-off following the emergence of Omicron. Taiwan and Indonesia were the best-performing markets with gains exceeding 5% in the period. In Taiwan, positive economic data and a rise in exports boosted investor confidence, with chip-makers performing well. 
• Russia lagged as geopolitical tensions with the West heated up when Russia sent troops on its border with Ukraine.
• China also finished in negative territory as concerns over slowing growth persisted, increased later in the quarter with rising daily new cases of Covid-19.

 In the US

• All eyes and ears were on the Fed which turned increasingly hawkish in November. In December Powell suggested tapering could be accelerated and he stopped referring to inflation as “transitory”.
• The US 10-year Treasury yield was little changed for the quarter, from 1.49% to 1.51%. It reached 1.7% in October because of elevated inflation and expectations of policy tightening, then a low of 1.36% in early December when fears over the Omicron appeared.

In the Rest of the World

• In EM, local currency bond yields rose, particularly where central banks continued to raise interest rates to fight climbing inflation. Central and eastern Europe underperformed.
• Investment-grade sovereign bonds saw positive returns.

• The yen was generally weaker in the quarter.
• EM currency performance was mixed, influenced by shifting risk sentiment towards higher interest rates. The Turkish Lira experienced extreme volatility.
• BTC and other crypto currencies fell sharply in Q4 as risk aversion blew over financial markets. To read more about it.

•  The S&P GSCI Index recorded a moderately positive return in the fourth quarter despite a sharp decline in the price of natural gas.

• Industrial metals was the best-performing segment as the global economic recovery gathered pace. There were strong gains in the prices of zinc, nickel, lead and copper.

• Agriculture also achieved positive returns, with robust gains recorded for coffee, cotton, corn and Kansas Wheat.

• Precious metals also gained in the quarter, with modest price gains for silver and gold.

• Energy recorded a modest decline, with a sharp fall in the natural gas price offset by modestly higher prices for unleaded gasoline, crude oil and Brent crude.

JP Morgan Market Update

“We expect to see market upside, though more moderate, on better-than-expected earnings growth with supply shocks easing, China/EM backdrop improving and normalizing consumer spending habits. … Most of the equity upside should be realized between now and the first half of 2022.”

Morgan Stanley Global Outlook

“The easy returns are over for U.S. equities, credits and Treasuries, but see value in European and Japanese stocks in 2022.”

 January 25-26: FOMC Meeting 

What we can expect: 

It will be the first 2022 meeting of the FOMC (Federal Open Market Committee), a branch of the Federal Reserve that decides on the monetary policy of the United States.

The bond-buying program was brought forward because of the fear of inflation. This month will be the start of the accelerated $60 billion bond-buying each month.

January 17-21: World Economic Forum – Postponed

What we can expect:

The annual World Economic Forum, which was scheduled for 17-21 January at Davos-Klosters, Switzerland, has been postponed due to the spread of the COVID-19 variant Omicron.

The organiser is now planning for an online session around early summer 2022. The theme for the forum will be “Working Together, Restoring Trust”.

It will be the first global leadership event to set the agenda for sustainable recovery from the COVID-19 pandemic. The meeting is expected to address economic, environmental, political and social fault lines exacerbated by the COVID crisis.

The forum will see politicians and business leaders exchange views on how to drive the post-pandemic economy. This event will set the tone for the economic landscape, especially as there is an increasing focus on climate change following pledges made to tackle the issue at COP26.

February 3:  ECB Monetary Policy Meeting

What we can expect:

The central bank for the euro and administers monetary policy of the Eurozone, which consists of 19 EU member states will review the policies in place in the backdrop of the coronavirus pandemic and increasing inflation.

February 4-20:  Winter Olympics in Beijing, China 

What we can expect:

It may seem like any other major international multi-sport event, but the winter games will be more politicized.This is because several countries have joined the US in a diplomatic boycott of the games over human rights issues.

We can expect tensions between the two superpowers to encompass more issues and involve retaliation.

March 27: Hong-Kong Elections  

What we can expect:

• The 2022 Hong Kong Chief Executive election will determine who wins the 6th term of the highest office in Hong Kong.
• The winner will be inaugurated on 1 July 2022 after incumbent Carrie Lam completes her term.
• Lam is eligible for a second term, but her re-election would be difficult with the numerous controversies that plague her administration.

• The issues range from the imprisonment of democracy activists to the highly criticized extradition law, which sparked widespread protests.

• The election comes at a time of escalated tensions between China and the US, and is significant given Hong Kong’s unique position.

• China is looking to have a Chief Executive to further its domestic goals.

Sources: MarketJournal.com, FitchSolutions.com