Performance – March 2022


Two themes made the headlines in the financial markets in March.

Needless to say that the first one was the war in Ukraine. The war has caused a heightened geopolitical risk level for the financial markets. In other words, the markets focus on whether the conflict may spread to other countries - and, of course, especially to NATO countries. That would be the worst case scenario for the financial markets. Moreover, the conflict results in an upward pressure on several commodities (of course oil and natural gas, in particular, but also several metals). This takes place at a time where several western countries are already struggling to limit the trend of rising prices at several levels. At the beginning of March, when the Russian war machine steamrollered all opposition, the geopolitical risk increased drastically, and there was heavy pressure on commodities (for a while, the oil price was at USD 130 a barrel). As the Ukrainian forces held firm, and various peace negotiations were announced, the risk level has fallen again. This has resulted in a stronger risk appetite among investors and falling commodity prices.

The other main theme was the US monetary policy. As expected the Fed hiked its rate by 25 bp at its meeting on 16 March. But just as importantly, the Fed still signalled a very harsh tone about the need for further tightening at the upcoming meetings. Therefore the market now expects the Fed to hike its rate more than eight times this year (figure 1), i.e. twice the number of hikes anticipated before the meeting on 16 March. Of course this led to heavy pressure, especially on short-term yields, which over the month rose by more than 100 bp. (2-year government bonds). In consequence of this, short-term yields now trade at a higher level than long-term 10-year yields, which in the past has signalled weaker economic growth going forward.

Asset class performance
March got off to a difficult start, but subsequently equities turned around and ended the month yielding positive returns. Due to threats of sanctions, stronger regulation and a new outbreak of Covid-19, especially Chinese equities saw a difficult month, and therefore emerging equity markets as a whole saw another decline in March.
Rising yields had an effect across all interest-rate related products, which generally saw declines over the month.
Our alternative investments performed very well over the month - especially due to the strategies investing in market trends.

Right now
The horrors and the human suffering in the wake of the war continued undiminished in March. It may seem cynical, but the financial markets have always found it difficult to stay focused, unless continuing escalation of events take place. Such escalation has not taken place since mid-March, and therefore the war has receded into the background in the markets.