Global stocks and bonds set to record losses of over $30 trillion in 2022 after inflation, rising interest rates and war in Ukraine caused asset markets to suffer the biggest losses since the global financial crisis It has been.
The MSCI All-World Index, which encompasses developed and emerging market equities, has lost nearly a fifth of its value this year. It was the biggest drop since 2008, with all stock exchanges from Wall Street to Shanghai to Frankfurt recording significant losses.
The bond market has also endured heavy selling. The 10-year US Treasury bond yield, a global benchmark for long-term borrowing costs, jumped to 3.9% from about 1.5% at the end of last year, the biggest gain of the year. Bloomberg records stretch it back to the 1960s.
Luca Paolini, chief strategist at Pictet Asset Management, said: “For years, low inflation and low interest rates have left both stocks and bonds expensive because they are the same game. continued,” he said. “The lesson this year is that at some point there will be a day of reckoning, and when it comes, it’s brutal.”
The market capitalization of companies traded on all stock exchanges worldwide fell by $25 trillion, according to Bloomberg, but the data provider’s Multiverse Index, which tracks the debt of global governments and corporations, remains at It’s down about 16% or $9.6 trillion. For provisional calculations at Thursday’s market close.
Antonio Caballero, head of investment at Generali Insurance Asset Management, described the downtrend in stocks and bonds as a “game changer for investors.” This is in contrast to 2008. While 2008 saw bond prices rise and hit many investors who build portfolios hoping their bond holdings would act as ballast when the stock market crashed, the recession hit stocks hard. concentrated.
The losses came after the central bank, led by the US Federal Reserve (Fed), raised borrowing costs in an attempt to curb the worst inflation in decades.
These interest rate hikes mark a dramatic end to the era of cheap money that followed the financial crisis, pushing yields on safe government debt below zero and pushing yields below zero on the riskiest assets, especially in the wake of COVID-19. pushed the price up. 19 Pandemic.
Russian Invasion of Ukraine February also saw severe inflation, disrupting supply chains. His 8% rise in the US dollar against a basket of half a dozen major peers puts further pressure on many markets.
This year also wiped out trillions of dollars from the value of the US tech giant.
Electric car maker Tesla has lost almost two-thirds of its value this year, and chip maker Nvidia is down 50%. U.S. tech giants Apple and Microsoft dropped nearly 30%, Google parent Alphabet dropped nearly 40%, and Facebook owner Meta plummeted 64%.
Overall, the blue chip US S&P 500 stock index is down 20% this year, while the tech-focused Nasdaq Composite is down 33%. The value of the cryptocurrency market has fallen by $1.7 trillion since the beginning of 2022, according to Financial Times datais a sign of how the speculative fever that took hold in 2020 has exploded this year.
China’s sprawling stock market has also taken a hit as the economy has been roiled by a draconian zero-corona measure, and the country is now battling a huge wave of infections as it prepares to reopen. The CSI 300 Index of Shanghai and Shenzhen equities fell 22% in local currency and 28% in dollar terms.
The MSCI Europe Index is down about 16% in dollar terms, but contracting 11% in euro terms.
Commodities have seen a rare rally in global markets this year. The S&P GSCI gauge rose 8%, with energy and agricultural prices rising significantly.
London’s FTSE 100, which is heavily weighted by energy, mining and pharmaceutical companies, has fared well in this year’s market shifts, but is up slightly year-to-date in sterling terms.
This year’s market intensity highlights the scale of regime change facing global investors accustomed to low interest rates.
Rising interest rates make holding assets such as stocks and riskier bonds less attractive as investors can get better returns on cash and ultra-safe assets such as U.S., German and Japanese government bonds. As interest rates rise, the cost of borrowing increases, which tends to tighten the financial conditions of businesses and firms, putting pressure on the economy as a whole.