March General Markets Comments

Solid, soild as a rock ?

Someone being told in December 2021 that the subsequent month of an invasion of Ukraine by Russia, with its cortege of implications, and notably on commodities, would see markets going up significantly, would have taken this assertion as a joke.
But this is no joke: in a month of extremely high geopolitical risks and possible escalation, soaring commodity prices and inflation expectations on top of surging Covid cases and increased supply-chain issues, markets have decided to walk on the sunny side of the street and post surprisingly good returns.

To wit, the MSCI World added +2.52% and is “only” down 5.53% year to date, while Credit also performed well (the Itraxx Crossover rose +1.25%) while Gold, although on the rise with a positive +1.49% performance in March, did not seem to reflect the extreme fear that most investors perceive.

The main financial victims of this situation are, so far, Emerging Markets, and in particular China: the Chinese CSI300 Index lost 7.84% in March and is now down 13.44% year to date.
With the first 2022 earnings releases looming, all eyes and ears will be focused on outlook and guidance. It is impossible that companies do not mention the geopolitical events’ consequences on their businesses, while they also will have to give a proper view on the implications of record-high commodity prices and supply-chain issues on margins and pricing. We can expect a very cautious tone, barring the obvious beneficiaries of the current mess, namely resources companies essentially.

To add to the unexpected set of observations in March, the upsurge in Government bond yields (US and German 10 years respectively up 51 and 41 bps) did not prevent Growth from outperforming Value, which is quite counterintuitive. The MSCI World Growth rose +3.14%, versus a +1.96% positive return for the MSCI World Value. And finally, the Japanese Yen, often seen as a safe haven currency in troubled times, fell 5.6% against the dollar, mitigating the relative resistance of the Japanese equity market, which is only down 2.41% this year when measured in local currency.

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