Insight

Market Insight - Global Monthly Outlook - May 2022 (covering April 2022)

Global Monthly Outlook

Global Outlook

Global equity markets endured a tough month in April, with most ending the month down. Widespread inflation, the Russia-Ukraine conflict and expectations around the US interest rate hike cycle continue to have an impact. While the dollar surged, the pound and euro fell significantly against it; intensifying China lockdowns have dampened demand and confidence in Asia.

April was a difficult month for fixed income. The bond market suffered as corporate and sovereign bonds suffered amid a hostile inflationary environment. This is putting increasing pressure on central banks to be more aggressive in raising interest rates.

Index April YTD
MSCI World USD -8.3% -12.9%
S&P 500 USD -8.7% -12.9%
MSCI Europe EUR -0.5% -5.6%
MSCI Asia Pac ex
Japan
USD -5.3% -10.6%
Hong Kong Hang Seng HKD -4.1% -9.5%
Hang Seng China
Enterprises (H-shares)
HKD -3.0% -11.4%
Topix JPY -2.4% -3.6%

Source: Thomson Reuters Datastream, total returns in local currency unless otherwise stated. Data as of  April 30, 2022. YTD refers to year-to-date.

United States

  • In the US, equity markets suffered, with the major indices (the S&P 500, the Dow Jones Industrial Average and the NASDAQ composite) all falling in value. Inflation hit 8.5%, driven largely by gas price. There was an unprecedented dollar surge, driven by expectations of an aggressive US interest rate hike cycle. Not only that, but safe-haven flows from investors concerned about the Ukraine war.
  • Expectations of continued momentum from post Omicron reopening help sustain growth in the US despite Fed policy normalization during 2022. Real incomes in the US have suffered from higher inflation so far, but healthy household balance sheets have helped maintain consumer spending and this dynamic is expected to continue to help households weather the inflationary storm

Europe (including UK)

  • European shares ended lower in April following weaker than expected growth in Europe and US, as well as concerns about the Chinese economy. The UK equity market ended marginally higher, in contrast with the rest of the world. But record-high inflation (now 7%) continues to be the theme, with pressure growing on the Bank of England to further increase interest rates.
  • Eurostat data showed that Italian output slowed, French output was stagnant while Germany and Spain grew moderately. Inflation has now hit 7.5%, largely driven by food and energy prices.  In politics, the much anticipated French election ended with the expected result, a victory for Emmanuel Macron.

Asia Pacific (ex Hong Kong ex China ex Japan)

  • Asia ex-Japan equities ended lower this month amid continued lockdown measures in Shanghai and the supply chain disruption as well as ongoing geopolitical tension.  Indonesia outperformed, while Greater China, India, Korea and ASEAN lagged.
  • Defensive sectors, telecoms and consumer staples, posted positive returns, while all other sectors finished lower.  Technology declined the most due to concerns of a slowdown in demand exacerbated by China’s lockdowns.

Hong Kong and Mainland China (H-shares)

  • China equity markets ended lower, led down by healthcare and information technology.  The continued lockdown measures in Shanghai and tightened COVID controls in Beijing and Hangzhou lowered the sentiment. In Hong Kong, the COVID situation are well controlled. However, the economic data in March is disappointed. The unemployment rate further increased while the exports fell , mainly due to transport disruption in Mainland China.
  • Communication services was among top-performing sectors this month. The communication services outperformed as positive developments in removing the overhang on US-listed Chinese companies and the online game license approval resumes early this month. On the other hand, information technology finished in the negative territory given softened demand of IT software and semi-conductor due to cost pressure.   

Japan

  • Japanese equities declined, as their local currency weakened. The Japanese yen went above 130 against the US dollar after the Bank of Japan reiterated its loose monetary policy stance. This is a stark contrast to peers in other developed countries.
  • The Japanese central bank vowed to buy unlimited amounts of bonds daily to defend its yield target. Meanwhile, inflation remains low relative to the rest of the world, standing at 1.2%.

Fixed Income

  • It was a challenging month for bond markets. The bond market suffered as corporate and sovereign bonds suffered amid a hostile inflationary environment. This is putting increasing pressure on central banks to be more aggressive in raising interest rates.
  • US inflation rate rising to 8.5% last month, its highest level in 40 years, the Federal Reserve is widely expected to deliver two consecutive rate hikes of 50 basis points (0.5%) each in May and June, with more to follow. Against this backdrop, US treasuries returned -3.2% in April. Sovereign bonds in Europe also lost ground, with German bunds and UK gilts falling by 3.1% and 3.0% respectively.

Emerging Markets

  • Emerging equity markets fell as markets priced in ongoing global uncertainty. The Russia-Ukraine conflict, Chinese lockdowns and the threat of faster interest rate hikes from the US Federal Reserve were the main culprits.
  • Latin American markets reversed months of outperformance and corrected down in April. The region still tops year-to-date performance though. Emerging markets (EM) lagged developed markets and the rest of the world, despite Latin America posting strong gains. 

From the perspective of Hong Kong pension investing. All data are sourced from Invesco dated May 20, 2022, unless otherwise stated.

Related Articles