TVC Economic Review: What Moved the Markets in Q4?

Disclosure: This article is posted to inform readers and not to provide financial advice.

In this Economic Review blog, we look back at the fourth and final quarter of 2022 and consider events that moved the markets in Q4. The start of a new year especially is an opportunity to reflect back and consider what lessons can be learned as we look forward. Here we summarise trends, developments, financial data, and major events that impacted the economy globally and locally in quarter four 2022. 

What is an Economic Review & Why is it important?

Every quarter, our team at TVC Health and Wealth Managers releases an economic review blog providing an analysis of what happened economically in South Africa and globally during that time. (You can read last quarter’s economic review here.) Assessing the performance of the economy is key to understanding the world around us, and is especially important for investors and business owners to take note of.

In this TVC Economic Review we reflect on the year that was and highlight the main events that impacted investors in Quarter 4 2022: 

Q4 2022 in a Nutshell

While some hoped that 2022 was going to be a year of global recovery from the Covid-19 pandemic and global growth was expected to remain above trend, it seemed a different story played out. We instead experienced continued volatility, global uncertainty, record-breaking inflation – leading to aggressive interest rate hikes – war and geopolitical risk, as well as energy and commodity price shocks.

Global supply chain constraints, which were hoped to ease in 2022, were instead further exacerbated by Russia’s invasion of Ukraine and China’s Zero-COVID Policy. Central banks struggled to tame inflation, meaning an end to near-zero interest rates: The US Federal Reserve hiked short-term interest rates seven times in 2022, and the South African Reserve Bank did so six times. The price of energy rose and global growth slowed.

Market perspective:
The impact of these forces driving the market resulted in uncertainty, negative sentiment, and a broad market sell-off in 2022. We saw disappointing equity and bonds market returns – due mainly to high and rising inflation, which meant sharply raised interest rates around the world, leading to downward pressure on almost all asset classes. On the upside, South African assets offered investors a good entry point throughout the year, showing that they can add value to a portfolio relative to global counterparts.

In Q4, stock markets saw gains, European equities advanced strongly, and Asian shares were boosted by China’s relaxation of its zero-Covid policy. Government bond yields edged up towards the end of the quarter (meaning prices fell).

In 2022 the world experienced energy price shocks. (image source:

Global Markets

2022 Overview
The World Bank refers to the past twelve months as having been “turbulent for the global economy”, as we saw conflict, inflation, food supply crises, and the tail-end of the Covid-19 pandemic cause shockwaves globally. Major themes were spiked interest rates, an effort to tame inflation by central banks, and Russia’s invasion of Ukraine which impacted oil prices, the global supply chain, and investor sentiment. The world’s second-largest economy, China, saw poor economic growth in 2022 due to stringent policies to contain COVID-19.

From a market perspective, we saw big technology stocks suffer declines in 2022, and dramatic declines in global equities (fell 18%) and global bonds (down 17%). Monetary stimulus has reversed, with the cost of money soaring. Real interest rates have spiked over 200 bps and equity risk premiums are up sharply. 2022 was also a tough year for sovereign bond investors.

Quarter 4
When it comes to globally significant events that moved the markets in quarter four:- in October we saw United Kingdom’s Prime Minister Liz Truss resign after only six weeks in office, followed by some stability for the country as Rishi Sunak was appointed and a greater emphasis was placed on fiscal prudence.

Topping off a bad year for crypto, we saw the cryptocurrency exchange FTX file for bankruptcy. Ending off the month of December, Wall Street ended 2022 with the biggest annual drop since 2008. On a positive note, Chinese markets rallied once more as Covid restrictions were lifted – providing some support to emerging markets.

Equities, Bonds, & Commodities
Overall, quarter four proved to be good for markets. Sentiment was supported mainly by a decline in expectations for interest rate increases. Although down by -18,0% (in US dollar terms) over the year, global equities had a strong final quarter recovering some ground. Developed market equities banked just shy of double-digit returns in Q4, mirrored by the MSCI All Country World Index up 9,9% (in US dollar terms).

Government bond yields edged up towards the end of Q4, reflecting some market disappointment at the hawkish tone from some central banks.

When it came to commodities, we saw a positive performance in the fourth quarter, with higher prices in industrial and precious metals, according to The S&P GSCI Index – formerly known as the Goldman Sachs Commodity Index and now owned and published by American credit rating agency Standard & Poor. Warm weather in Europe helped to reduce natural gas demand.

The MSCI Emerging Markets Index – which is a measurement of stock market performance – advanced 9,8% over the quarter.

The below graph shows a summary of other indexes’ total net returns to end Q4 2022:

Image source:

Local Markets

2022 recap:
On the local front, political and economic risks seemed to form a cloudy backdrop for South Africa in 2022, considering Eskom’s woes and the risk of being greylisted as a country (a risk that has not yet gone away, read more here). Global energy prices impacted us locally, and we saw multiple repo rate hikes throughout the year. South Africa also made some progress in 2022 with regard to structural reform, but more robust institutions are needed for improved investor confidence.

Quarter 4
When we consider events that moved the markets in Q4 on the local front:-
In October, The Medium-Term Budget Policy Statement (MTBPS) delivered some much-needed good news. A gross tax revenue overrun of R83.5 billion relative to estimates, leading to much improved fiscal metrics, with gross debt to GDP stabilising faster. In November 2022, The South African Reserve Bank (SARB) hiked interest rates to above pre-Covid levels, increasing the repurchase rate by 75 bps to 7% (the third consecutive hike of this magnitude).

It was another record year of load shedding, the impact of which featured strongly in weaker PMI activity surveys in the quarter. In mid-December, we saw the resignation of André de Ruyter as Eskom CEO, just off the back of the company’s financial results which posted an annual loss of R12,3 billion.

The ANC Elective Conference in December had a positive market-friendly outcome; President Cyril Ramaphosa was re-elected as ANC president, serving his second five-year term. However, the ANC National Executive Committee (NEC) remains divided.

Considering the markets, we look to the Indexes.
The FTSE/JSE Indexes represent the South African equity market and its market segments, with the acronym FTSE referring to The Financial Times Stock Exchange and the JSE standing for Johannesburg Stock Exchange.
In November we saw the FTSE/JSE All Bond Index gain 3,9%, and local equity markets recovered in line with global trends, with the FTSE/JSE All Share advancing 12,3%. Despite a negative print in December, local equity markets delivered positive returns over the quarter, with the FTSE/JSE All Share gaining 16,0%.

Resources rallied 17,6% over the quarter and 7,6% over the year with notable gains from industrial and precious metals, as well as energy-related sectors. Financials (10,2%) and banks (17,7%) delivered a strong 12-month performance. The property sector rallied alongside other risk assets in the fourth quarter (19,3%), but didn’t do well for the year.

You can see a recap of asset classes in Rands in the table below:

Image source: Morningstar

Looking Forward

In January, The World Bank slashed its growth forecasts – now expecting global GDP growth of 1.7% in 2023 – warning that the global economy could tip into recession this year. We’ve felt the impact of central bank rate hikes only intensify (these increases usually have a lag effect), as Russia’s war in Ukraine doesn’t let up, higher energy prices put pressure on consumers, and the world’s major economies continue to struggle.

Market expectations are that inflation will fall and that the US Federal Reserve will cut rates, but there are some risks (geopolitical, central bank/government policy error) that could drive market volatility.

Locally, The South African Reserve Bank expects the SA economy to grow by less than 1.5% p.a. to 2025, as load shedding and political inertia continue to create a challenging environment. We can only hold out for improved reform and that key institutions aren’t further compromised.

Investor perspective/ opportunities:

Where investments are concerned, remember the following into 2023 (and beyond):

  • Patience can pay off. If you’re patient, you’ll be amazed by the power of compounding over time!
  • Negativity tends to present opportunity, if one is able to focus beyond the short-term noise. (As was the case in the late 1990s, it was a challenging time to be a value-oriented investor as the bubble inflated – but also an incredibly rewarding period in its aftermath as valuations normalised.)
  • 2022 again showed the importance of investing in a well-diversified portfolio.
  • South African assets have a strong valuation underpin.
  • Anticipate further market volatility and plan accordingly.

We can help!

Professional advice from TVC Wealth and Health Managers is the best way to approach your investment portfolio. Contact us today.

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