Market update – year ended 31 March 2022

Provided by Russell Investments 

2021 was a year of post-lockdown recovery which led to strong growth in many economies. According to the World Bank, after contracting sharply in 2020, the global economy rose 5.5% in 2021, driven primarily by the United States where economic growth was the strongest since 1984. For the first half of the year economic recovery was accompanied by strong equity market performance, and solid returns from bonds, however inflation fears, concerns about the China property market and further lockdowns due to the spread of the omicron COVID-19 variant rattled markets towards the end of 2021. The Russian invasion of Ukraine in February 2022 added to concerns, resulting in sharp falls in share and bond prices over the first three months of 2022.

The surge in inflation was the main surprise of 2021, driven by disruptions in global supply chains, ultra-accommodative monetary and fiscal policy, combined with very strong consumer demand as economies were reopened. This was exacerbated by surging commodity prices, particularly energy and food, as a result of the war in Ukraine.

The relatively strong performance of global share markets between April and December 2021, was followed by a sharp turnaround in the first quarter of 2022. As a result, we saw a very mixed result for the year to 31 March 2022. Overall, global shares returned around 9% for the year, but while in the US, the UK and Australia, equities managed to deliver strong positive returns, in the emerging markets, in particular China, and in Europe, returns for the year were negative. The New Zealand market was also weak, returning -2.9% for the year.

Fixed interest markets delivered negative returns over the year as bond yields rose (bond prices move in opposite direction to interest rates) in response to the strong economic growth and higher than expected inflation. Partly offsetting this were the asset class’s traditionally defensive characteristics in the wake of Russia’s invasion of Ukraine. New Zealand bonds underperformed global as the Reserve Bank of New Zealand raised the Official Cash Rate four times between October 2021 and April 2022.

The poor performance from fixed interest meant that the Conservative option delivered a negative return for the year. Despite the falls in share prices in the first quarter of 2022, Balanced and Growth members did receive positive returns for the year due to the strong performance from global share markets over the previous three quarters. Members also benefited from their exposure to global listed infrastructure and property which both performed well in the inflationary environment.

After the very strong returns that members received in the 2021 year, this year has provided a reminder that investment markets can be volatile, especially over shorter time periods. With investing, especially investing for retirement, it is important to focus on the long term and not be too alarmed by short term fluctuations which are a normal part of the investment cycle.  

This information has been prepared by Mercer (N.Z.) Limited for general information only. The information does not take into account your personal objectives, financial situation or needs.

26 April 2022