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Portfolio Performance for the Quarter Ended 30 June 2022

1st Half 2022 Market Review

Global markets faced a list of concerns in 2022, including supply-chain disruptions from China’s zero-tolerance COVID-19 lockdowns, an economic slowdown, the Russia-Ukraine war, surging inflation and global central bank tightening. The results have led to a tough 1H22, with global equities down around 20% and the global government bond benchmark off 10%. For more than 40 years, this is only the second time that stocks and bonds have posted losses for 2 consecutive quarters.

Performance of Major Indices, Currencies, and Commodities

<Source: Morningstar Direct Data as of 30 June 2022 (Regional and market indices were based on the respective Morningstar total return index. Gold and platinum prices were based on the LBMA Price PM; silver price was based on the LBMA price.>

Global markets officially entered bear market territory with a decline of 20.1% in 1H22. The US market (-21.3%) was the largest contributor to global equity decline, followed by Europe (-23.3%) and Asia Pacific (-17%). Fixed Income, which typically cushions equity stress, provided no refuge. The Morningstar Global Treasury Index fell more than 15% over the 1H22, while the Morningstar US Core Bond Index declined roughly 10% for the same period.

The tipping point came amid growing concerns that the US Fed would have to raise interest rates so aggressively that it would push the US into a recession. The Fed raised rates twice in 2Q22, 50bps in May and another 75bps in June. Underlying the rise in yields were the big changes in expectations for Fed’s policy rate to rise sharply from around 2% at the end of 2021 to far above 3% by the end of 2Q22.

One notable exception was China which began 2Q22 with continued regulatory pressure against key internet and consumer companies, the spectre of delisting China shares traded in the US and COVID lockdowns in major cities. However, towards the end of 2Q22, Chinese authorities released a set of measures to jumpstart the economy and eased some COVID restrictions. China outperformed as it did not fall as much as the rest of the world’s major markets.

It was a mixed picture for commodities. Oil prices extended their climb due to Russia’s war against Ukraine. Whilst gold was flat, platinum and silver declined in 1H22.

Portfolio Performance As of June 2022

Total Returns in USD

<Source: Morningstar>

Annualised returns for P04-P10 continued to track underlying benchmarks closely. Outperformance of the Emerging Market ETF (23bps) and Developed Market ex-US ETF (29bps) relative to their benchmarks resulted in positive tracking differences. 

P01-P03 outperformance was due to slightly better returns in our Malaysia fixed income allocation relative to Malaysia’s fixed income index (Markit iBoxx ALBI Malaysia Total Return Index).

Total Returns in RM

<Source: Morningstar>

Total returns converted to ringgit were higher as the ringgit depreciated by 3.0% (since Aug 2020), 5.7% (1-Year) and 5.3% (YTD) against the USD. 

Lessons Learned From the History of US Stock Market Crashes and Downturns Since January 1871

Market History: Growth of $1 and the US Stock Market’s Real Peak Value, January 1871 – May 2022

<Source: Morningstar Direct – SBBI US Large-Cap Index from January 1926 through 1991 and the Morningstar US Large-Cap Index from January 1992 through May 2022. Using SBBI US Inflation series from January 1926 through May 2022 for inflation-adjusted returns.>

  • With 22 of the worst market declines over the past 152 years, the US market eventually recovered and went on to new heights. The market dropped by an average 32% from peak to trough over an average period of about 2 years, and it took slightly more than 2 years to recover from the trough. 
  • It is hard to predict the severity of the market drop and the recovery period.
  • During times of a rapid decline, investors should avoid panic selling.
  • Those who stop investing will miss out on the recovery and subsequent growth of the markets which are essential for long-term wealth accumulation.

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