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October proved volatile but was a lot brighter than September. This was due to a positive sentiment in the market - among investors - that the series of interest rate hikes might be coming to an end. This was despite inflation showing no sign of slowing down and the disappointing quarterly results from big tech companies such as Meta Platforms and Amazon. Politics also played an important role this month. Be it the election of Xi Jinping to a third term, or the appointment of Rishi Sunak as the third prime minister of the United Kingdom in just two months. And although politics exerted considerable pressure, the European Central Bank (ECB) doubled the interest rate by 0.75%.
Shares in emerging markets performed less well because investors are concerned about China's growth forecasts. Globally, investors fear a short-term focus on power instead of growth due to the newly appointed ‘standing committee’ in the Chinese government.
Bond yields initially rose in the US and Germany but cooled off in the second half of the month due to the changing sentiment.
Best fund performance in October 2022: NT World Small Cap ESG Low Carbon Index Fund +6.15%
Shares in developed countries rebounded from the disappointing month of September. After nine consecutive weeks of outflows from global equity funds, there was renewed full investment in the last week of October.
According to Refinitiv Lipper (a renowned financial services provider that offers impartial performance data on e.g. pension or equity funds), the total net inflow that week was around 7.8 billion dollars.
The S&P 500 closed the month 9.2% higher. Inflation in the United States was still higher than expected in October (8.2%). But the market was supported by growing optimism that central banks would raise interest rates at a slower pace. This is because:
- The Bank of Canada implemented a smaller interest rate hike than expected (0.5%).- Christine Lagarde (ECB) expects the Eurozone to enter a recession. - FED governors shared that interest rates will rise less quickly again.
Shares in Europe followed their American counterparts (STOXX 600 +6.3%).
Liz Truss resigned as Prime Minister of the UK. Rishi Sunak was appointed as her successor with the challenge of getting the British economy back on track. The British pound recovered slightly (1.15 GBP vs. 1 USD) after the election. And some short-term breathing room was created for the British government to borrow money to recover from Brexit and Covid as bond yields decreased.
Emerging Market shares performed worse than the ‘developed’ ones. China remains a concern for investors all over the world. It is expected that the newly appointed ‘standing committee’ will focus more on power than growth in the short term. Furthermore, the persistent Covid-19 restrictions for China appear to be a challenge to return to their economic growth.
India and Korea, however, performed better, but TSMC (the chip manufacturer from Taiwan) struggled during the month due to a predicted decline in the demand for chips and less expected investment in the coming quarters.
The price of crude oil rose (+11%) because OPEC+ limited the pumping of crude oil to 2 million barrels per day. Other commodities such as gold and silver did not change as much, despite developments in sentiment.
American and European 10-year yields rose sharply, by 24 basis points in the US and 4 basis points in Germany. This is thanks to the perseverance of the global central banks in fighting inflation by implementing interest rate hikes.
High-yield bonds (+0.64%) and corporate bonds (+0.42%) showed a relatively slightly better result, with a decrease in the risk premium during the month due to the positively influenced sentiment.
Money market rates rose after the interest rate doubled. It is expected that the money market return will continue to rise to a level of 1.5% next month after the next interest rate hike.
- Meeting of the Federal Reserve (FED)- Continued developments in the situation in Ukraine- Economic data pointing to less inflation and less chance of a recession as a basis for continued optimism.
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