How 2022 shocked, rocked, and rolled markets around the world
The world stock market lost trillions of dollars, the bond market threw a fit, currency and commodities fluctuated wildly, and a few crypto empires went bankrupt. 2022 was likely the most turbulent year for investors ever, and for good reason.
Adding up the final numbers is helpful, but it doesn’t tell anywhere near the whole story.
Yes, global stocks have lost $14 trillion and are on track for their second worst year ever, but in that time there have been nearly 300 interest rate hikes and three rallies of 10% or more, making the volatility crazy.
Related: The World Bank gives Ukraine $610 million in aid.
The main causes have been the war in Ukraine and the soaring cost of living as the world’s economies recovered from the pandemic, but China was still held back by it.
In dollar terms, U.S. Treasury bonds and German bonds, which are considered to be the best ways to borrow money around the world, lost 16% and 24%, respectively.
Jeffery Gundlach of DoubleLine Capital, who is known as the “Bond King” in the markets, says that there were times when things were so bad that his team almost couldn’t trade for days at a time.
“There’s a strike by buyers,” he said. “And it’s easy to see why, since prices have been going down until recently.”
Shifts in earthquakes, www.reuters.com/graphics/GLOBAL-MARKETS/egpbyyqjdvq/chart.gif,
The drama started when it became clear that COVID wasn’t going to shut down the global economy again and that the U.S. Federal Reserve, the most powerful central bank in the world, was going to raise interest rates.
Ten-year Treasury yields went from less than 1.5% to 1.8%, which caused MSCI’s world stock index to drop by 5% in January.
That yield is now 3.68 percent, stocks are down 20 percent, and oil prices went up 80 percent before giving it all back. Even though it said it wouldn’t move at this time last year, the Fed has raised rates by 400 basis points, and the European Central Bank has raised rates by a record 250 basis points.
Even though the Bank of Japan surprised everyone this week by giving the yen a boost, the dollar has gained almost 9% against the main world currencies and 12.5% against the Japanese yen.
Turkey’s inflation and monetary policy problems have caused the lira to lose another 28% in emerging markets, but its stock market is the best in the world.
Hard-pressed Egypt’s currency lost more than 36% of its value. Ghana’s currency, the cedi, fell by 60% after it joined Sri Lanka in defaulting. Even though it is down a lot from its highs in June, the Russian rouble is still the world’s second-best currency, thanks to Moscow’s capital controls. It was initially broken after Ukraine was invaded.
Graphic 5: The strength of the dollar rules the FX markets, https://www.reuters.com/graphics/GLOBAL-MARKETS/zdpxddkarpx/chart.png
Robert Alster, the Chief Investment Officer at Close Brothers Asset Management, said, “If you ask me what will happen next year, I really couldn’t tell you.” Like many others, he pointed out that the pound and British bond markets took a beating when Liz Truss’s short-lived government flirted with an unfunded spending spree.
Ten-year gilt yields went up by more than 100 basis points, and the pound fell by 9% in just a few days, which is a big change for a major market.
“Don’t be surprised if it goes down like a cup of cold sick if you sell it wrong,” said Michael Hewson, a seasoned analyst at CMC Markets.
The rise in interest rates has also cost the tech giants $3.6 trillion. Both Facebook (NASDAQ:META) and Tesla (NASDAQ:TSLA) have lost more than 60% of their value, while Alphabet’s Google (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) have lost 40% and 50%, respectively.
Chinese stocks have made a late comeback because there are signs that its zero-COVID policy is coming to an end, but they are still down 25%, and “hard currency” government debt from emerging markets will have its first ever back-to-back loss.
Graphic 7: The value of global stocks has dropped by $14 trillion, https://fingfx.thomsonreuters.com/gfx/mkt/znvnbgqdbvl/Pasted%20image%201671611348378.png
IPOs and bond sales have also gone down almost everywhere except the Middle East. For the second year in a row, commodities have been the best-performing asset class.
The price of natural gas has gone up by more than 50%, which is the best of the group. However, this is mostly because of the war in Ukraine, which pushed prices up by 140% at one point.
As fears of a recession grow and the West decides to stop buying oil from Russia, Brent has lost all of the 80% it gained in the first quarter. So have wheat and corn.
Graphic 8: The Cost of War, https://fingfx.thomsonreuters.com/gfx/mkt/zdpxddjyopx/Pasted%20image%201671610776849.png
Even more chaos has come to the cryptomarket. Bitcoin will end in 2022 without its mix of cheap money and high-risk bets.
Related: The world worries about a new wave of China’s COVID and thinks about how to help Xi.
The leading cryptocurrency has lost 60% of its value, and the crypto market as a whole has shrunk by $1.4 trillion. This is because Sam Bankman-FTX Fried’s empire, Celsius, and so-called “stablecoins,” TerraUSD and Luna, all failed.
Stefan Gerlach, Chief Economist at EFG Bank and former Deputy Governor of Ireland’s Central Bank, said, “What has happened on the global markets this year has been traumatic.”
“But it wouldn’t have been so bad if the central banks hadn’t been so wrong about the rise in inflation and had to raise interest rates.”
Graphic 3: Look for the jump Find the jump at: https://www.reuters.com/graphics/GLOBAL-MARKETS/jnpwyyyazapw/chart.png