Our latest monthly investment update for January 2022 looks at how the global investment markets, economy, and commodities perform.
The FTSE 100 index of leading UK company shares closed at the end of December at 7,384.54 points, up 305.53 points or 4.32%.
Despite the negative influence of Covid, the London market enjoyed its best annual performance in five years in 2021, gaining almost 1,000 points in the space of a year.
Investors were buoyed by a spell of economic optimism, thanks to the success of vaccines facilitating the reopening of economies and continued monetary and fiscal stimulus measures. Concerns about rising price inflation, supply chain disruptions, and Covid variants did little to upset this market exuberance.
However, the FTSE 100 delivered a relatively poor performance last year compared to its international peers. While the FTSE 100 grew by around 14%, the S&P 500 returned 27% growth in the US, and the CAC40 in France was up 29%.
The DAX in Germany and US Dow Jones Industrial Average were up 16% and 19% respectively in 2021, exceeding the FTSE 100.
As we head in 2022, investors have questions about sustained price inflation, economic growth and the impact of emerging Covid-19 variants. The outlook for global monetary policy includes the prospect of several rate hikes in 2022.
In the US, the Federal Reserve has scheduled three interest rate hikes this year and plans to speed up the rate at which it cuts spending on government bonds. One policymaker referred to the tightening monetary policy as a response to “alarmingly high inflation”.
A new study in Denmark has found that the Omicron variant is better at evading immunity in vaccinated people than the Delta variant. The study helps explain why Omicron is spreading more quickly than Delta.
Within the strong equity market performance, last year was news at the start of January that Apple has become the first company to achieve a stock market capitalisation of $3 trillion. Since Apple co-founder Steve Jobs announced the first iPhone in 2007, the share price has risen 5,800%.
In China, shares in the embattled property group Evergrande were briefly suspended at the start of the year, before the company released ‘inside information’.
Evergrande received an order from authorities in Danzhou city in Hainan to demolish 39 buildings currently under construction at their Ocean Flower Island project.
Shares in the group, which is struggling to make payments on its $300 billion of debt, fell almost 90% in the last year, prompting fears about contagion risk in Asia and the broader global economy.
Inflation in Turkey soared to 36% in December, its highest in 19 years following a series of contrarian interest rate cuts. The Turkish lira lost 44% of its value last year, the worst-performing emerging markets currency.
Oil-producing nations are likely to stick to their plans to increase oil output next month at their meeting this week. The OPEC+ group of oil-producing countries believes, according to sources, that reduced demand due to the impact of the Omicron variant is likely to be short-lived.
Each month since August, OPEC+ has increased its oil production target by 400,000 barrels per day. This increase in output is designed to unwind the 10 million barrels per day cut at the onset of the pandemic.
UK think tank the Centre for Economics and Business Research (CEBR) is forecasting global economic growth of 4% this year, down from the estimated 5.1% achieved in 2021.
CEBR says that 2022 will be dominated by efforts to combat rising price inflation and climate change, but global economic growth should be reasonably robust. However, they believe stock market growth will be weak this year.
Last year’s growth estimates for the UK economy were reduced from 6.7% to 6.6%, following a weaker than expected performance in December. Douglas McWilliams, founder and executive deputy chairman of the CEBR, said:
“We estimate £3bn or so of lost GDP from people staying at home and not spending, plus the impact of the restrictions in Wales and Scotland.”
The estimate for global economic growth was also scaled back by 0.1 percentage points to 5.1% for 2021.
On inflation, the CEBR expects inflation to continue rising in the UK, to reach more than 6%. In the US, they expect to see inflation go higher than 7% after reaching a 39-year high of 6.8% for the year to November.
The UK housing market is expected to be more stable in 2022, following a very strong performance in 2021, leading to record high prices for homes.
Trade association UK Finance reported that last year was the strongest since 2007 for mortgage lending. It estimated that £316 billion of mortgages were given.
The benchmark 10-year government bond (gilt) yield rose during December, reaching 1.060% at the start of January as investors responded to the Bank of England’s interest rate hike and expected further rate rises in 2022.