• Equity indexes declines
  • Global growth forecast lowered

April proved to be another challenging month for financial markets. Ongoing war in Ukraine pushed prices of goods and services even higher and central banks around the world were pressured to increase interest rates. More than 60% of the world central banks’ latest decision was to raise rates. This situation prompts continued reevaluation of risky assets. Developed market index in euros (MSCI World TRN) contracted 3,3%, while emerging markets (MSCI EM TRN) index in euros declined 0,4%. 

World Bank announced the creation of a 170 billion USD rescue package – bigger than its COVID‑19 response – for crisis hit nations. In its latest outlook IMF warned about possible “seismic waves” rolling over the global economy, especially in emerging markets as fuel and food prices have increased rapidly, hitting vulnerable populations in low‑income countries hardest. IMF cut its 2022 global growth projection by 0,8 percentage points to 3,6%. Developed markets growth projections lowered by 0,6 percentage points to 3,3%, while emerging markets forecast was cut by 1 percentage point to 3,8%. 

For the past 20 years Emerging markets economies grew at a faster rate than that of developed countries. Higher economic growth also was reflected in local stock market, but movements in emerging markets index were relatively larger both to the upside and downside. Over the last few years emerging markets lagged developed markets substantially. Even after this period of weakness Emerging market index (MSCI EM NTR in euros) in 20 years period grew about 320%, while developed market index (MSCI World NTR) in euros grew 260%. If emerging market economies continue growing at a faster rate it would be reasonable to expect historical pattern of outperformance to once again reclaim itself.
GDP growth comparison

Equity indexes

Source: IMF.org, Bloomberg L.P.

US Federal Reserve chairman Jerome Powell reiterated commitment to getting inflation down to 2% and signaled support for further aggressive tightening to curb inflation. He announced, that “50 basis points increase will be on the table during May meeting”. It is also widely expected, that one more 50 basis point increase will follow in July.

In April Chinese mainland stock market index CSI 300 declined towards lowest level since June 2020, but afterwards started to rebound. Chinese government urged country’s banks and insurers to buy more local equities to support falling stock markets. Nation’s strict Covid Zero policies, crackdowns on biggest local IT giants and other companies, faltering real estate sector and slowing economic growth spooked investors. Recently government promised to stabilize markets, vowed to speed up implementation of supportive measures, including tax cuts and fee reductions.

China central bank did not cut key policy rate which stayed at 2,85%, disappointing most economists who had expected a reduction to help economy amid worsening Covid outbreak. Authorities will probably try to boost confidence levels before 20th National Congress of the Chinese Communist Party where it is believed, that precedent‑breaking third term of president Xi Jinping will be confirmed. Congress should be organized on the second half of 2022. Priorities presented during the Party Congress will also help set China’s political, economic, and foreign policy trajectory for the next five years and beyond.

One positive effect from all the bad news is, that a lot of negative scenarios seems already calculated in stock and bond prices and it is unlikely to get such a negative surprise, which would push prices substantially lower.

“House view” update

In April Luminor Investment management team decided to keep decreased risk allocation budget and to keep higher exposure to defensive sectors (utilities, healthcare and energy). The investment team continues to monitor actions of the central banks, first quarter earnings season and possible consequences of war in Ukraine. 

House view



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