Written by Cormac Nevin.
Last Friday marked the end of an extraordinary first quarter, which likely left most policymakers feeling like April fools. Policies centred around everything, ranging from dependence on Russian hydrocarbons to past assertions of the transitory nature of inflation, and began to unwind before our eyes. Vladimir Lenin famously said, “There are decades where nothing happens; and there are weeks where decades happen”, and this quote certainly applies to the first quarter of 2022.
Markets rallied last week as risk appetite appeared to return. The MSCI All Country World Index returned +1.2% in GBP terms. Overall, the first quarter was negative for both Equity and Fixed Income returns with the confluence of the economic impact from the war in Europe, causing higher interest rates as central banks battle stubborn inflation and further COVID restrictions in China causing a broad-based sell off. The MSCI All Country World Index of global equities was down -2.1% for the quarter, however outcomes ranged from -7.3% for Continental European Equities to +0.8% for UK Equities, while the S&P 500 in the US was down -1.4% despite heavy tech selling at the beginning of the quarter.
It was one of the worst quarters on record for Fixed Income, as the Bloomberg Global Aggregate GBP Hedged was down -5.2% in the face of rising interest rates, while Investment Grade Credit was down -7.1%. Similar to the equity markets, there was a wide dispersion of outcomes below the surface. Chinese Government debt was up +0.3% for the quarter while Short Dated Inflation Linked Bonds were down only -0.3%. Periods like this illustrate once again the necessity for diligent and diversified positioning to achieve the best outcomes for clients.