Investors are reeling from the worst year in global financial markets since the 2008 financial crisis, as inflation forced central banks around the world to raise interest rates and put an end to the supply of cheap money that has fuelled a golden decade for investors.
Global stocks have lost about a fifth of their value during the last year, as the “everything bubble” that inflated during the Covid-19 pandemic burst, sending tech shares and crypto assets tumbling.
Inflation surged as economies reopened from the pandemic lockdowns and Russia triggered an energy crisis in Europe by weaponising gas supplies.
Inflation then hit the bond market, which fell into its first bearrun in more than 70 years – with the turmoil after the UK’s mini-budget hammering UK debt and weakening the property sales. Political turmoil also sent the pound reeling to a record low against the US dollar.
“2022 was certainly eventful,” says the Investec economist Philip Shaw.
Equities
The MSCI All-Country World Index of stocks lost about a fifth of its value during 2022, in what Bloomberg calls an “$18tn rout”. That’s the worst performance in 14 years, since the global financial crisis wiped 40% off stock values in 2008.
Europe’s STOXX 600 fell by about 12% in 2022, its worst performance since 2018. But the UK’s FTSE 100 posted a small gain, lifted by energy companies and defence firm BAE Systems.
China’s blue-chip CSI 300 index fell 22% in 2022, as Covid-19 lockdowns hit its economy through the year.
Equity Market Country (DV) Returns pic.twitter.com/3Ray9g3KqQ
— Richard Dias (@RichardDias_CFA) December 29, 2022
The market sell-off wiped almost $1.4tn from the fortunes of the richest 500 alone in 2022, according to the Bloomberg billionaires index.
Shares tumbled as inflation soared, crushing hopes that price rises would be transitory. US consumer price inflation reached a four-decade high of 9.1% in June, and proved stickier than hoped in the autumn too.
Joe Biden dubbed inflation “the bane of our existence”, as food and gasoline prices rocketed. It prompted the US Federal Reserve into its most aggressive rate hikes since the 1990s.
FAANGs for nothing
Tech stocks were particularly hit – the Nasdaq Composite lost a third of its value in 2022. The FAANGs – an acronym referring to the big five tech companies, Meta (formerly known as Facebook), Amazon, Apple, Netflix and Alphabet (formerly known as Google) – were far from immune.
Apple fell 27%, Amazon’s share price halved, while Facebook owner Meta fell 65% as investors balked at Mark Zuckerberg’s $100bn push into the metaverse.
Tesla also lost about two-thirds of its value in 2022, hitting a two-year low.
Tesla’s shares had a rough end to the year, losing almost 40% in December, hit by fears of slowing demand and concerns that chief executive Elon Musk was being distracted by his purchase of Twitter.
“Speculation abounds that the selloff is related to mercurial CEO Elon Musk’s new acquisition of Twitter, ranging from whether Twitter is merely distracting him from his auto company to concerns about his increasingly erratic tweets to worries that Musk is being forced to sell his stake in Tesla in a margin call to support those who bankrolled the Twitter acquisition,” says Matthew Weller, global head of research at City Index.
Bonds
2022 was a historically bad year for European sovereign debt, which was hammered by interest rate rises by the European Central Bank and the US Federal Reserve.
The interest rate, or yield, on German 10-year bunds suffered its biggest selloff going back to the 1950s, according to Refinitiv data.
By the end of September 2022 had been the most devastating period for bonds since at least 1926, according to one estimate.
Investors with classic “60/40” portfolios (60% in shares, and 40% in bonds) were facing the worst returns this year for a century, BofA Global Research warned in October.
The most important take of the year is that “the era of easy money” has ended, and ended for good, says Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.
“We didn’t know it at that time but the 2022 bear market officially kicked off just a couple of days after the year started, when the first minutes release of the year showed that the Federal Reserve was not kidding about the rate hikes, and that the financial conditions would get real tighter over the year,” Ozkardeskaya says.
“And man, they got tighter … way tighter than we expected a year ago, with the Fed raising its interest rates by 425 basis points starting from March,” she adds.
Energy
Europe’s energy system faces an unprecedented crisis, although prices have cooled from their highs.
Continental gas prices broke new records in August, jumping to €321 a megawatt-hour (compared with €27 a year earlier), after Gazprom announced the closure of its Nord Stream 1 pipeline to Germany for maintenance. The pipeline then remained closed, before then being sabotaged in September.
Despite the disruption, Europe managed to fill its gas storage facilities, helped by an influx of liquid natural gas (LNG). This week, benchmark European gas prices fell back to levels last seen before the Ukraine invasion.
Oil posted its second annual gain in a row, after a turbulent year. In March, Brent crude reached its highest point since 2008, touching $139 a barrel, as traders anticipated disruption to Russian supplies.
But crude prices then fell back from that March peak, ending the year about $83 a barrel, on concerns that the global economy was weakening, meaning lower demand from the world’s top crude importer, China.
“Concerns about weaker global demand and a particular slowdown from China given its aggressive Covid lockdowns have pushed oil prices lower. This year’s dollar strength has also put pressure on oil markets,” says Victoria Scholar, the head of investment at Interactive Investor.
Commodities
Copper headed for its first yearly decline since 2018, as prices were pushed down by the stronger dollar, fears of a global recession, and the worsening Covid-19 situation in top consumer China. Other industrial metals on the London Metal Exchange were on track for yearly falls, of between 2% and 35%.
But London nickel prices posted the highest gains since 2009, jumping 45% during 2022.
Concerns about disruption to nickel supplies from Russia caused chaotic trading in March. Prices doubled to above $100,000 a tonne in a matter of hours, prompting the LME to suspend trading and annul trades, which then triggered a lawsuit from New York hedge fund Elliott Management.
Mini-budget chaos
2022 will also be remembered as the year of the mini-budget crisis. Kwasi Kwarteng’s plans for unfunded tax cuts sent sterling cratering to a record low of about $1.03, and caused a dangerous selloff in government bonds.
The yield, or interest rate, on 30-year UK government debt surged from 3.5% to more than 5% after the mini-budget, as investors sold these gilts, questioning whether Liz Truss’s administration could run a sustainable tax and spending policy.
This created a fire sale, in which some pension funds were forced to offload billions of pounds of UK government bonds, or gilts, at distressed prices.
Some funds came close to collapse before the Bank of England stepped in with a pledge to buy bonds.
That intervention calmed the markets, but gilt yields have been creeping higher, with 30-year bonds now yielding more than 3.9%.
The mini-budget was also a disaster for sterling, and it helped drive the US dollar to its highest level for 20 years, although the pound has recovered and is now trading at about $1.20.
Crypto
After peaking in November 2021, the cryptocurrency market had a dire 2022 as central bankers raised interest rates and ended the flow of cheap money.
Bitcoin lost two-thirds of its value, in a grinding “crypto winter” in which a series of trading platforms failed, including the cryptocurrency exchange FTX.
