2022 turned out to be the worst year for global equity investors since the 2008 Financial Crisis. In essence, the good returns they earned the previous year (considering the MSCI World AC index) have been sacrificed. Along with this, Growth investors suffered even more from the strong rotation to the Value style of investing.

Investors faced a potent combination of severe macro risk factors from early in the year. As some of these factors faded over months and new ones appeared, investors continuously had to assess whether the overall risk from the combination of these factors was still getting worse or not, with inflation fears dominating investor risk assessment. Whilst US inflation peaked in June, the market only took some comfort after the third consecutive drop in September. Equity markets have since turned for the better.

Apart from the uncertain geopolitical tensions regarding Ukraine and China, there are promising signs that the combination of overall risk factors has stabilised and is now improving. US inflation is expected to drop further, the Federal Reserve’s tightening task seems to be not far from predominantly done (they have started to temper the increase in their target rate), the US bond market (the world’s most liquid market, and therefore a strong barometer) remains relatively calm, company earnings results are better than feared, China is starting to unlock their economy, and the Dollar has already depreciated by 9% since its recent peak (reflecting moderating investor demand for a safe haven). Whilst we cannot conclude that we are out of the capital market woods yet, these are all important support factors. Investors face a potential US recession, and if so, it will be the most anticipated one we can recall. Their expectations have largely moderated. Two successive negative global equity performance years are relatively rare (since WWII, only in 1973/74 and 2000/01/02). Whilst we prepare for continued volatility, we find enough reason to stay largely invested, in best quality sustainable growth franchises at attractive valuations.