Written by Cormac Nevin.
The last month of 2022 witnessed weak returns across asset classes, book-ending what has been one of the most challenging years for investors in decades. The MSCI All Country World Index was down -4.9% for the month of December in GBP terms, while the Bloomberg Global Aggregate Index of high quality global bonds was also down -1.3% in GBP Hedged terms.
There were a number of contributing factors to the weak market performance in the final weeks of 2022. US jobs data on the 15th and 22nd of December came in stronger than anticipated, which were followed by stronger consumer confidence data released on the 21st. The market likely interpreted this as a green light for the Federal Reserve to continue the policy of monetary tightening to combat inflation which has terrified markets all year.
The month also saw a continued underperformance of growth equities vs their value counterparts, with the MSCI All Country World Growth Index down -6.5% vs -3.3% for the value-biased equivalent index (both in GBP terms). Many of the growth names which fared so well in 2020 and 2021 continued to come back down to earth.
As we begin a new year, things are looking arguably rosier for investors. Inflation is continuing to fall in the US at a faster rate than anticipated. It is also likely close to peaking in the UK and Europe (baring any further escalation in geopolitical tensions etc). Asset prices across the board are at some of the most attractive levels they have been at in years, with even high quality government bonds offering decent yields. While the last year has been painful, it presents opportunities and the ability for long-term investors to lock in future gains.