Performance, January 2022


Performance, January 2022
The hangover following the celebration of a fantastic year with respect to returns in 2021 hit the financial market in the first month of the new year. A combination of expectations of a further strengthening of the monetary policy (see chart 1) and higher risk of a Russian invasion of Ukraine was behind the slowdown in the market. Without ignoring the serious menace to peace in Europe, geopolitical events seldom have long-term consequences for the equity market. On the other hand, higher interest rates and fewer stimuli from the world’s central banks pose a potentially higher risk. The ample liquidity and the low interest-rate level have constituted a considerable lever for the prices of equities and credit bonds and are therefore of strong importance for the markets.

Chart 1: Expectations of Fed hike

In addition, we still see a trend towards a slowdown in economic growth especially in the US and China, and several countries are still living with restrictions due to COVID-19. It is still important to point out that even though the growth level is slowing down, it takes place from relatively high levels in 2021. In other words, it is difficult at the present point in time to see a major economic downturn in the coming six months – especially in the light of the fact that several countries in the Northern hemisphere are beginning to open up as spring is approaching and infection numbers decline.

The Q4 2021 reporting season is also well under way, and so far it has generally been reasonable. Approx. half of the US companies have turned in their financial statements, and these have shown earnings growth at 29%. This is slightly lower than in previous quarters but still at a relatively high level. Among the large equities we have seen both positive and negative news. Apple, Google and Microsoft delivered good results whereas for instance Netflix and Facebook took the market by negative surprise and were punished by the stock exchange.

Asset class performance
As mentioned above, we have seen a difficult start to the new year. Global equities (developed countries) shed almost 4% in January – but on the other hand, emerging equity markets (unlike 2021) showed better performance and ”only” declined by 0.44%. Danish equities were hit very hard with a decline of full 8.1%.
Rising interest rates also made their impact on the other investments in the portfolios. Only local currency emerging market bonds delivered a positive return for the month.

Right now
The price declines on the stock exchanges over January were perfectly in line with our previous comments that 2022 will be an increasingly normal year for equities, and that we will therefore experience more corrections. We are still bullish about equity investments, and consequently they still carry strong weight in the portfolios.