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Market commentary

Stock markets around the world have been falling for much of last year, pricing in interest rate rises and the chance of recession, among other events. Once a recession is announced, this can often be the turning point for stock market falls, with the forward-looking markets looking for the green shoots of recovery.

16th January 2023


The UK equity market stood out as a rare developed market winner in local currency terms, buoyed by its heavy exposure to energy and more defensive sectors as well as high dollar-denominated profits. It is important to bear in mind however, that this was not a reflection on the state of the domestic economy generally or of those in charge of it. The FTSE100 Index ended with an overall gain, albeit only just, of under 1%. The biggest positive contributions came from BP (+50%), Astra Zeneca (+32%) and Shell (+27%), highlighting the global strength of energy companies.


Last year, Europe was dominated by Russia’s invasion of Ukraine. The disruption to supplies of natural gas from Russia highlighted the fragile nature of dependency upon a dominant external source of energy. To date the worst expectations have not been met: avoiding an escalation of the war, and an unseasonably warm autumn (now extending into the New Year) meant that expensively procured gas supplies were maintained at high levels before a winter chill descends. However, it remains to be seen how costly replenishing stocks for next winter will be. More laudably, necessity became the mother of invention for many industrial and residential consumers, with energy use reportedly reduced by as much as 25% in some industries through the adoption of more efficient practices.


The US equity market saw sharp falls as interest rates and bond yields rose. However, the near 20% fall in the main US stock market index: the S&P 500 fails to tell the whole story. While unsurprisingly, the best-performing sector was Energy (+59%), which benefitted from rising oil and gas prices, there were big falls for Information Technology (-29%), Consumer Discretionary (-38%) and Communications (-40%). The latter two sectors’ fate was sealed by the poor performance of two heavyweight constituents in each case: Amazon (-50%) and Tesla (-65%) in Consumer Discretionary companies; and Meta (Facebook) (-64%) and Alphabet (Google) (-39%) in Communications companies.

Emerging markets

Although China continues to dominate any discussion of Emerging Markets owing to its dominant size in indices as well as its huge influence on global demand, it is worth noting that several smaller emerging markets acquitted themselves well in 2022 when returns are measured in sterling terms. Turkey was up 130%, Argentina +54% and Brazil +21%.

Looking at positives for 2023 there are several factors in favour of Emerging markets again.

  1. A potential weakening of the US dollar. Owing to high dollar-based liabilities and funding costs, a strong dollar tends to be a drag on emerging market performance. A falling dollar will ease these pressures.
  2. A successful exit by China from its zero-Covid policy should be positive for the global economy, bolstering demand in China itself and relieving some of the supply chain issues.
  3. Largely resource led economies have seen many emerging market countries fend off the worst effects of global inflation and are well positioned to grow their economies now.

Defensive assets

In December, the Bank of England’s Monetary Policy Committee voted to raise the Bank rate by 0.50% to 3.50%, as expected. Looking at the minutes, it was not a unanimous decision with two members voting for no change, while one member voted for a second 0.75% increase. The minutes of the meeting reported that although the economy was slowing, some indications suggested that it was more resilient than expected. The Bank is erring on the side of caution at present in favour of capping inflation at the expense of the economy for now. Market expectations reflect that, with the Bank rate expected to peak at 4.5% or so next summer.

This is similar to the tone in the US, with the latest projections of a peak in the US Central Bank: the Federal Reserve rate at over 5% (with the current rate of 4.5%) and no cuts until 2024.

With few predictions of sharper interest rate rises, fixed interest investments have been more positive with both the Index-Linked Gilt fund and the Global Short-Dated Bonds fund held in portfolios rising since the beginning of October and now with much higher ongoing yields, they will be able to start recovering capital lost over the last year.

Please speak to your financial planner if you want to discuss your portfolio.