Global stocks and bonds will register losses of more than $30tn for 2022 after inflation, rising interest rates and the war in Ukraine caused the biggest losses in asset markets since the global financial crisis.
MSCI’s broad All-World index of emerging and emerging market equities has shed a fifth of its value this year, the biggest drop since 2008, with stocks from Wall Street to Shanghai and Frankfurt all down significantly.
In New York, a sell-off in the final trading day of the year added to losses for the blue-chip S&P 500 and the tech-heavy Nasdaq, which have fallen 19 percent and 33 percent this year, their worst. annual performance for both since 2008.
The bond market also saw heavy selling: the yield on 10-year US government bonds, a global benchmark for long-term borrowing costs, rose to 3.9 percent from about 1.5 percent at the end of last year – the largest annual increase. in Bloomberg notes until the 1960s.
“We have had this situation for years where equities and bonds are expensive because they are the same game, driven by low inflation and low interest rates,” said Luca Paolini, chief strategist at Pictet Asset Management. “The lesson of this year is that at some point there is a day of reckoning, and when it comes it’s brutal.”
The market value of companies traded on all global stock exchanges fell by $25tn, according to Bloomberg, while the data provider’s Multiverse index, which tracks global government and corporate debt, fell by almost 16 percent or $9.6tn in terms of market value, according to provisional calculations. in the market there is a cover.
Antonio Cavarero, head of investment at Generali Insurance Asset Management, described stocks ‘and bonds’ downward trajectory together as a “game-changer for investors”. This is in contrast to 2008, when the slump was concentrated in equities while bond prices rose and gave a painful blow to many investors who built portfolios in the hope that fixed-income holdings would act as ballast when the equity market collapsed.
The losses came after central banks led by the US Federal Reserve increased borrowing costs in an attempt to control the worst inflation in decades.
The rise in interest rates brought to a close the era of cheap money that followed the financial crisis, which reduced the yield on safe government debt below zero and increased the price of the riskiest assets, especially after the Covid-19 pandemic.
Russia’s invasion of Ukraine in February also led to severe inflation, disrupting supply chains. An 8 percent surge in the U.S. dollar against half a dozen major peers has put more pressure on many markets.
Rising borrowing costs also wiped trillions of dollars off the value of US tech titans, which have led pandemic-era rallies since 2020.
Tesla, the maker of electric cars, has shed nearly two-thirds of its value this year, while chip maker Nvidia is down 50 percent. US tech heavyweights Apple and Microsoft have tumbled almost 30 percent, while Google’s parent Alphabet is down nearly 40 percent and Facebook owner Meta has plummeted 64 percent.
The value of the cryptocurrency market has fallen by $1.7tn since the beginning of 2022, according to the Financial Times data, a sign of how the speculative spirit that took place in 2020 has exploded this year.
China’s booming equity markets have also taken a hit as the economy has been hampered by strict zero-Covid measures and the country is currently battling a wave of infections as it reopens. The benchmark CSI 300 in Shanghai and Shenzhen fell 22 percent in local currency and 28 percent in dollars.
MSCI Europe’s index fell about 16 percent in dollars, but was a leaner 11 percent in euros.
Commodities have been one of the rare gainers in global markets this year: the broad gauge S&P GSCI has rallied 9 percent, with energy and agriculture prices making strong gains.
London’s FTSE 100, which is heavily weighted towards energy, mining and pharmaceuticals companies, has fared better in market swings this year, slightly up for the year to date in sterling terms.
The intensity of this year’s market changes highlights the scale of the regime change facing global investors, who are accustomed to low interest rates.
Higher interest rates make it attractive to hold riskier assets such as stocks and debt as investors can generate cash or ultra-safe assets such as US, German or Japanese government bonds. Because higher rates make borrowing more expensive, they also tend to put pressure on the broader economy by tightening financial conditions for companies and businesses.