Following the market sell off in January, the trend remained downwards during February as well. The New Zealand and Australian sharemarkets moved slightly against that trend with positive returns, whilst developed global markets were generally down between 0-3% over the month.
For NZ investors, currency hedging added value to protect against the rising NZ dollar which offset the opposite movement during January. Generally the same factors that were weighing on markets in January (tightening money supply, higher interest rates, increasing inflation fears) continued through February, but with the added uncertainty created by Russia’s military attacks on Ukraine. Accordingly, we saw energy stocks generally perform well with increases in energy prices improving their earnings (notwithstanding that some energy firms took significant losses on their Russian assets as they shunned Russian operations), and technology stocks generally struggled due to valuation concerns over rising interest rates even where such companies have strong cashflows and earnings outlooks.
One aspect of change since the end of January is that the geopolitical conflict could bring forward the anticipated global slowdown and also make it worse which would weaken the case for interest rates to rise as far or as fast as previously expected. Should this narrative start to be heard from central banks, then markets may re-assess their expectation on when, and at what level, interest rates will peak in this cycle.