Stock and bond markets drop more than $30 trillion in ‘brutal’ 2022

Global stocks and bonds are expected to lose more than $30 trillion by 2022 after inflation, rising interest rates and the war in Ukraine took the heaviest losses in asset markets since. from the global financial crisis.

The MSCI All-World index of developed and emerging market shares has lost nearly a fifth of its value this year, its biggest drop since 2008, with shares from Wall Street to Shanghai and Frankfurt all had significant reductions.

The bond market also suffered a massive sell-off: the yield on 10-year U.S. government bonds, the global benchmark for long-term borrowing costs, jumped to 3.9% from around 1.5% at the end of last year – the largest annual increase in Bloomberg records stretching to the 1960s.

“We’ve had this situation for years where stocks and bonds were both expensive because they were the same game, driven by low inflation,” said Luca Paolini, chief strategist at Pictet Asset Management. and low interest rates. “The lesson of this year is that at some point there will be a day of reckoning, and when it does, it will be devastating.”

According to Bloomberg, the market value of companies traded on all global stock exchanges has fallen by $25 trillion, while the data provider’s Multiverse index, which tracks government debt and businesses globally, down nearly 16% or $9.6 trillion in market value. interim calculation at market close on Thursday.

Antonio Cavarero, head of investment at Generali Insurance Asset Management, described the overall downward trajectory of stocks and bonds as a “game changer for investors”. . This contrasts with 2008, when the decline was focused on stocks while bond prices rose and dealt a blow to many investors who built portfolios in the hope that holdings would yield fixed will act as a drag when the stock market plunges.

The losses come after central banks led by the US Federal Reserve raised borrowing costs in an attempt to control the worst inflation in decades.

Those rate hikes closed the era of cheap money in the wake of the financial crisis, sending yields on safe-haven government debt below zero and pushing up the prices of even the riskiest assets, in particular. after the Covid-19 pandemic. 19 pandemics.

of Russia Invasion of Ukraine in February also caused a severe bout of inflation, disrupting supply chains. The US dollar’s 8% gain against a basket of six major currencies added pressure on many markets.

Line chart year-to-date % change represents a volatile year for global markets

Rising borrowing costs have also wiped trillions of dollars off the value of US tech giants, which led to a pandemic-era rally that began in 2020.

Tesla, the maker of electric cars, has lost nearly two-thirds of its value this year, while chipmaker Nvidia has dropped 50%. US tech heavyweights Apple and Microsoft are down nearly 30%, while Google parent Alphabet is down nearly 40% and Facebook owner Meta has plummeted 64%.

Overall, the US blue-chip S&P 500 stock index is down 21% this year, with the tech-focused Nasdaq Composite down 34%. Both indexes are on track to record their worst annual performance since 2008.

The value of the crypto market has dropped by $1.7 trillion since the beginning of 2022, according to Financial Times Dataan indication of how the speculative fervor sustained in 2020 has exploded this year.

China’s burgeoning stock markets also suffered a blow as the economy was disrupted by strict Covid-free measures and the country is currently battling a wave of infections. big when reopening. The CSI 300 index of shares in Shanghai and Shenzhen fell 22% in local currency and 28% in dollar terms.

The MSCI Europe Index is down about 16% in dollar terms, but 11% lower in euro terms.

Commodities have been one of the few to see price gains in global markets this year: the broad S&P GSCI index rose 8%, with energy and agriculture prices surging.

London’s FTSE 100 index, which rates highly for energy, mining and pharmaceutical companies that have outperformed this year’s market swings, is up slightly year-to-date. in British pounds.

Column chart of Annual Change in 10-Year US Treasury Bond Yields (percentage points) showing historically rising US bond yields

The intensity of this year’s market swings highlights the scale of regime change facing global investors who are accustomed to low interest rates.

Higher interest rates reduce the appeal of holding riskier assets such as stocks and debt as investors can earn better returns with cash or extremely safe assets. such as US, German or Japanese government bonds. Since higher interest rates make borrowing more expensive, they also tend to put pressure on the broader economy by tightening financial conditions on companies and businesses.


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