Coming into 2022, the global financial markets were riding a wave of low interest rates, fiscal stimulus through government grants and the largest monetary stimulus packages released by central banks in history.
The conditions were therefore ripe in early 2022 for a significant market correction, which quickly turned into a bear market, the catalyst being the rise of rampant inflation. The coronavirus pandemic-era combination of supply shortages and high demand pushed up inflation and saw the US Federal Reserve pivot from viewing inflation as transitory to aggressively pushing up interest rates to curb runaway inflation.
However, both have recently bounced off their bear market lows in the latest response to what seems to be a softening in the inflation outlook. One of the few assets that has provided protection has been cash, within the safety net of a strong dollar. These value sectors performed relatively well despite the broad weakness across asset classes. The energy sector stands out as one of the best performers this year, led by oil and gas companies. Certain commodities in the mining sector have also seen significant gains. Coal has been a major gainer in terms of both the rise in the price and the substantial upward move in coal miners’ share prices.
An interesting aspect that emerged from analysis of the sectors that performed well is that many of the underlying stocks can be viewed as undesirable based on low environmental, social and governance factors. Energy companies are likely the most controversial in this case given that their business agendas are contrary to what global governments are trying to achieve in fighting climate change and adhering to the UN’s sustainable development goals.
Lies 😹