Selected Market Indicators for Periods to 31 January 2022

The start of 2022 was a volatile month for equities. Inflation remained at multi decade highs as a competitive labour market and soaring oil prices sustained pressures. Many central banks projected further conditions for raising rates, including the US Federal Reserve (Fed). The market is now pricing in five interest rate increases from the Fed for 2022. This less accommodative outlook, in addition to Russian geopolitical concerns and weaker earnings forecasts drove a negative market sentiment leaving the MSCI World down 1.3% (unhedged, NZD) for the month. The interest rate sensitive nature of growth stocks meant they lead the declines with the MSCI World Growth down 5.5%. The only sector safe from declines over the month was energy, which benefitted from rising energy prices; Brent Crude Oil reached $90 a barrel for the first time since October 2014.

Driving these price appreciations are falling oil stockpiles in the US and rising political tensions with Russia. The rise in commodity prices has benefited regions such as the UK and Latin America that have higher exposure to the energy sector. New Zealand equities did not fare well in the global sell off, declining nearly 9% in January. The NZX 50 has declined by 10% from the start of last year through January 2022. The ASX 200 was also down nearly 6.4% (local currency) for the month of January.       

Significant developments for January included:

• High flyer tech stocks such as Netflix, Paypal and Meta (formerly known as Facebook) saw up to 25% stock price drops after earnings came in lower than expected setting the tone for other companies releasing earnings to beat analyst expectations by a high margin  as investors’ became wary of high valuations. 
• Inflation surged to 5.9% in New Zealand as a tilt in messaging from central banks to inflation being more persistent going into 2022, paired with strong unemployment figures in New Zealand, paved the way for the RBNZ to raise rates again this year.
• The US deployed 3,000 military personnel into Poland, Germany and Romania as a show of support to NATO allies as fears of a Russian invasion of Ukraine heighten. The Top US Military general stated that a Russian invasion of Ukraine would be “horrific” for the country and would result in “significant” loss of life. Russia’s President, Vladimir Putin, wants to use Ukraine as a form of leverage to release political and financial sanction in place against Russia, however some analysts state that the cost of Russia attacking Ukraine may significantly outweigh any benefits Russia may obtain.