2022 began with all market sectors posting falls in value with the exception of cash. Fixed Income markets fell as inflation data suggested that the recent inflation figures may remain elevated for longer than previously advised by central banks (one phrase we heard being that inflation could be more persistently transitory!).
Linked to this is the plan by many central banks to continue removing money supply particularly through the unwinding of the QE programmes. These interlinked forces of reduced money supply and higher interest rates serve to reduce the value of future cashflows and therefore the values placed on businesses and hence we see equity markets also fall back.
The New Zealand market dropped by around 9% in the month of January and global markets weren’t much better, however the sharp drop in the NZ dollar meant that for those who held equities in foreign currency the losses were mitigated significantly. Within the equity markets, stocks associated with technology were particularly badly hurt due to widespread selling (some of it quite indiscriminate), whereas energy stocks generally performed well with surging energy prices as demand outstrips supply (which feeds back into the high inflation figures), and so companies such as Shell, BP and Exxon Mobil increased in value by over 25% in the month of January.