The following reflects the general views of our Treasury & Investment Office (T&IO) and should not be taken as a recommendation or advice as how any specific market is likely to perform.
These views are as at the end of March 2022.
The value of investments can go down as well as up. Investors could get back less than they put in.
Please remember that past performance is not a reliable indication of the future performance.
The relatively mild infection produced by the dominant Omicron COVID-19 variant meant that many economies were able to reduce restrictions and move towards fully reopening during the quarter, aiding global economic growth. However, in China, strict COVID-19 curbs and continued uncertainty in its property sector hampered economic activity in the country somewhat. The price rises seen on many goods and services globally over the past year continued during the period, a problem that was exacerbated by Russia's military invasion of Ukraine in late February. The conflict sent prices in energy markets (oil and gas) and other key commodity markets soaring as production shutdowns and international sanctions began to hit the Russian economy. Global economic activity began to be negatively affected, particularly in Europe where many nations rely on Russian gas supplies. The US Federal Reserve and the Bank of England both raised interest rates in response to the ongoing inflationary environment.
The UK stockmarket, led by the FTSE 100 larger companies index, proved to be remarkably resilient in a difficult start to the year, ending just in positive territory for a sixth-successive quarter and ahead of the major regional equity markets in local currency terms. The dominant events were the crisis in Ukraine and swingeing sanctions on Russia. Risk appetite improved as the two sides met for peace talks.
US stockmarkets fell, with falls led by the technology-dominated Nasdaq, although losses were reduced by strong rallies late in March.
The war in Ukraine and its consequences weighed heavily on European equities. They fell and lagged other major markets and regions. Concerns about inflation, which was driven in part by surging commodities prices after Russia invaded Ukraine, and rising interest rates dampened investor sentiment.
The Japanese stockmarket fell and lagged the MSCI World Index. Asia Pacific ex Japan performed broadly in line with other markets around the world, although once again its largest constituent market, China, performed poorly.
It was a volatile period for fixed income markets, initially driven by concern that interest rates would need to be increased more aggressively to tackle surging inflation. The invasion of Ukraine became the dominant theme with a surge in wheat and energy prices expected to put even further pressure on inflation. Against this backdrop, UK government bonds (gilts) delivered negative returns as the 10-year gilt yield climbed above 1.7%, reaching its highest level in since 2016. UK corporate bonds were also in negative territory with the downturn in risk appetite leading to weakness across credit markets.
Global fixed income markets underperformed across the board as investors worried about inflation and increasingly hawkish central bank rhetoric before events in Eastern Europe cooled the lure for risk assets almost completely.
UK commercial property enjoyed a solid start to 2022, with total returns from all sectors providing a positive contribution. Despite the high level of COVID-19 cases, rising inflation and increasing interest rates, investors appear optimistic. We believe the reasons for the optimism are improving economic and employment growth - both key drivers of the demand for space - buoyant household savings, which are supportive of a retail and leisure recovery, and employees returning to the office. Trends of the past few months remain in play, with ongoing strong demand for industrials. Retail has seen a marked recovery, primarily driven by retail warehouses. Demand for office space is also steadily gaining traction, with undersupply at the prime end allowing vacancy rates to stabilise.