• Global equity markets rebounded in March as the FTSE All-World Total Return USD Index climbed 2.2% over the month, bringing the year-to-date drawdown to 5.1%. 
• The US Federal Open Market Committee (FOMC) hiked rates for the first time since 2018, raising the federal funds rate by 25 basis points to a target range of 0.25% - 0.5%. Quantitative easing that has more than doubled the Fed balance sheet since March 2020, also came to an end.
• The US 10 – two year yield curve spread, fabled as a leading indicator of recessions, inverted towards the end of March.
• According to Our World in Data, 58% of the world’s population were fully vaccinated as of 31 March 2022, compared to 55.7% in the previous month. 

Market update   

Global equity markets rebounded in March as the FTSE All-World Total Return USD Index climbed 2.2% over the month, bringing the year-to-date drawdown to 5.1%. Hawkish monetary policy rhetoric from several FOMC members combined with inflation fears have resulted in substantial bond market volatility with the FTSE World Broad Investment-Grade Bond Index retreating 3% over the month. Commodity prices took another leg higher as the Bloomberg Commodity Index returned 8.7% over the month amid tensions between Russia and Ukraine weighing on commodity supply chains. While talks of a ceasefire between the two regions certainly emboldened risk-on appetite in global markets, the economic impact to date remains dire. In fact, European natural gas prices - as proxied by the ICE Endex Dutch TTF Natural Gas Futures Contract - are up 99.6% this year, as at the end of 31 March 2022. This will almost certainly adversely impact the European consumer and business income statement; hence it is unsurprising that confidence metrics are starting to fall in the region.    

March saw the US FOMC hike rates for the first time since 2018, raising the federal funds rate by 25 basis points to a target range of 0.25% - 0.5%. Quantitative easing that has more than doubled the Fed balance sheet since March 2020 also came to an end. Federal fund futures as of 31 March 2022 are pricing in over 200 basis points worth of rate hikes for the remainder of the year to keep inflationary pressures under control which will likely be accompanied by a balance sheet runoff process. While the magnitude and timeline of the reduction in the Fed’s balance sheet are uncertain, previous FOMC minutes have highlighted that it will likely be faster than the 2017-2019 tightening period.

The March FOMC economic forecasts and Fed Chair, Jerome Powell’s continued reassurance that the US economy was strong enough to withstand a tighter monetary policy stance have been taken positively by equity markets. However, the fixed income market is suggestive of economic fragility with the US 10 – two year yield curve spread, fabled as a leading indicator of recessions, inverted towards the end of March. The last time this happened was in August 2019 during the US-China trade war, and before that, in the run-up to the global financial crisis of 2007-2008.

Covid-19 cases continue to abate as the global vaccination rollout continues to make significant headway. According to Our World in Data, 58% of the world’s population was fully vaccinated as of 31 March 2022, compared to 55.7% in the previous month.  

Fund strategy

Heading into 2022, we are cautious about the returns for global equity markets as many of the catalysts that propelled equities in 2021 are fading. Supportive monetary and fiscal policy is starting to dissipate, particularly in the US. It will be important to remain on high alert as global liquidity is drained from financial markets. For now, the developed market consumer income statement and balance sheet position stand in good stead, although we expect precautionary savings to fully unwind in the near term unless further lockdown restrictions are erected. We believe inflationary pressures will dissipate in the second half of 2022 as we assume supply chain bottlenecks will likely unwind as trading conditions normalise. In addition, shelter price base effects from 2021 will likely lead to a disinflationary backdrop, particularly in the second half of 2022, as a more meaningful acceleration seems unlikely due to rising affordability concerns likely limiting house and rental price appreciation. 

Fund performance 

While both the USD Global Growth and Balanced Funds climbed 1%^[1] and 0.3% in March respectively, this was lower than the Morningstar peer group return of 1.7% and 0.6% for each respective fund. Nevertheless, both funds remain in the second quartile year-to-date. The relative underweights to US and Europe, the lagging performance in the ASEAN region and gold allocation detracted over the month. Lastly, our most defensive fund, the Sterling Asset Management Fund, rose 0.2% due to its high fixed income structure limiting the upside over the month. We continue to remain vigilant by keeping the overall fund beta at lower levels compared to majority of last year, particularly as capital preservation remains a top priority in the current operating environment.