Affinity Market Commentary – February 2022

GLOBAL MARKETS

Global equities fell, led by a sell-off in US technology stocks

UK equities delivered mixed results

US MARKETS

US equities fall, led by technology Stocks

Fuelled by fears of expected higher US interest rates, US Equities tumbled, with technology stocks leading the way. The Fed Chairman, Jerome Powell, said that they would begin to reduce the government balance sheet once rates had begun to rise, and this would primarily take place in the form of adjustments to reinvestment, as opposed to outright bond sales. Concerns over rate hikes were also compounded by the escalating tensions with Russia over Ukraine. A strong rotation into value stocks wrong-footed many funds.

Down -5.3% (US 500)

EUROPEAN MARKETS

Weak results to start the year following a strong 2021

European markets recorded their worst month since October 2020. Investors were concerned about inflation, supply-side bottlenecks and possible rate rises. EU stocks saw a sharp contrast between value and growth, with the EU Value Index actually recording a small rise. GDP data showed a rise of 0.3% quarter-on-quarter, taking the region’s economy back to its pre-Covid size. Christine Lagarde rejected calls for early rate rises, despite inflation continuing to rise, and the ECB stated (in December) that it was unlikely to raise rates in 2022.

Down -3.9% (Euro 600 Index)

UK MARKETS

FTSE 100 delivers a silver lining in an otherwise gloomy market

Returns in the UK equity market were dominated by large-cap companies, with the FTSE 100 gaining 1.1%. This was more than offset, however, by falls of 6.6% and4.1% in the mid and small-cap indices respectively. The broadly flat (-0.4%) return from the All Share Index belied the diverse performances from its constituents, the overall results reflecting a rotation towards large-cap (value) from mid and small-cap sections. Fears for inflation and rising rates were balanced by steady estimates for earnings growth, and upside earnings surprises from some large retail companies.

Down -0.4% (UK All Share)

ASIAN MARKETS

Hong Kong one bright spot in otherwise falling markets

Asia was led lower by falling Chinese equities, which lost more than 7%. India also returned a small loss. There were, however, gains in some markets. Hong Kong, which was the worst performing major market in 2021, rose by more than 1.7%. Japan, whilst not experiencing the inflation seen in other markets, was affected by falls around the world and comments from the Fed. The rest of Asia saw mostly modest declines. South Korea was the weakest market, on continued foreign selling by risk-averse investors in the technology sector. The Philippines was the best market.

Down 2.7% (Asia Index)

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

Key Points

  • Natural gas prices rose by another 35%, as tensions over Ukraine continued to escalate
  • US Technology stocks fell, leading a sharp rotation from growth into value in most markets
  • Corporate earnings continued to surprise on the upside in the US and elsewhere. However, companies beginning to cite rising labour costs as a growing concern
  • Asian shares generally began the year well, but were dragged lower by successive falls on Wall Street, and continued to deteriorate as the Fed pointed to early rate rises
  • European markets hit record highs on the first trading day of 2022, but this was followed by four weeks of losses, amid fears of slowing growth, higher inflation and rate rises

 

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

Key Points

  • Sterling strengthened against the euro, as investors weighed the EU’s Russian energy dependence
  • Whilst the pound appeared attractive relative to the euro in the event of sanctions against Russia, Sterling weakened against the traditional ‘safe haven’ currencies, i.e. the dollar and the yen
  • The dollar was generally strong, buoyed by a flight to safety by some investors, and the increasing expectation of early rate rises from the Fed
  • Eurozone inflation is expected to top December’s 5% print in January, driven primarily by energy. However, dependence on Russian gas helped to undermine the currency
  • The yen stabilised against the dollar after a weak 2021, driven by a deteriorating trade deficit. Expectations are for this to rebound modestly in 2022

 

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

Key Points

  • Bonds of almost all types and markets fell in January, driven by the expectation of interest rate rises from the Fed and most likely other central banks in the months ahead
  • Global government bonds tended to perform slightly better than their corporate counterparts, as the realisation of default risk returning to the bond market finally hit the high yield market
  • UK gilts fell by almost 4%, following the recent UK rate rise, and with an anticipation of further rises to come early in the new year
  • Globally, government bonds were the most resilient category, whilst investment grade corporates also showed limited losses in Japan and Europe

 

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

 

 

 

Disclaimer: The information contained in this report is for illustrative purposes only and should not be construed as a solicitation nor offer, nor recommendation to acquire or dispose of any investment. Specifically, the share class used to create the illustrations may not be available on all platforms nor be suitable for individual investors. This report was produced by Collidr Research (“Collidr”) for Affinity Integrated Wealth Management (AIWM) and while AIWM and Collidr use reasonable efforts to obtain information from sources which they believe to be reliable, neither AIWM nor Collidr make any representation that the information or opinions contained in this report are accurate, reliable or complete. The information and opinions contained in this report are subject to change without notice. Model returns are calculated using the most appropriate share class of the underlying funds, having regard to the illustrative nature of the report, with all income being reinvested. As a result, real portfolio performance may vary from model performance. Where model portfolio histories are shorter than three years, historic model returns are substituted prior to inception date with returns from an Collidr performance benchmark. This benchmark is constructed from the average returns of all Collidr portfolios with similar risk profiles that existed during that time. The value of investments and the income from them can go down as well as up and past performance is not a guide to the future performance. Affinity Integrated Wealth Management is a trading style of Buryfield Grange Limited, Buryfield Grange Life Planning Limited and Affinity Integrated Wealth Management Ltd. ‘Buryfield Grange Limited’ is authorised and regulated by The Financial Conduct Authority. Not all services provided by Buryfield Grange are regulated by the Financial Conduct Authority. ‘Buryfield Grange Limited’ is registered in England and Wales at Inspire House, 20 Tonbridge Road, Maidstone, Kent, ME16 8RT. Company  registration number 4568338. Collidr Research is a trading name of Collidr Technologies Limited, registered in England and Wales at 34 Southwark Bridge Road, London, SE1 9EU. Company registration number 09061794. Data Providers: Bloomberg L.P. and Collidr.

What our clients say

"Many thanks for your part in all this and I will be mentioning, and I trust that this is acceptable to you, to my accountants, Applied Accountancy, that you have given me excellent advice and been most helpful and prompt about it all."

Mr Leigh-Pemberton CBE DL, Kent

What our clients say

"Ian has always been helpful and hugely knowledgeable. I am a woman on my own and I feel that Ian is someone I can trust with my finances as I find much of this area very difficult to understand. He is professional and competent, as are all his staff."

Geraldine, Surrey – Client for 7 Years

What our clients say

"Finances, investments, pensions etc are all complex issues and generally complicated & difficult to understand. We chose Ian Painter of Affinity to manage our savings because he is very professional in his approach and his knowledge covers every aspect of the market to offer the best advice to secure our investments. We are very happy with the service we are receiving from Mr Painter and his team and have no reservations in recommending him to others."

Martyn, Berkshire – Client for 5 Years