Global equities

Global equities – March 2022 results

14 Apr 2022 | 3 minutes read
Ted Alexander
Portfolio Manager
& Head of Investments

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March was a volatile month for stocks due to the conflict in Ukraine and economic concerns over inflation and interest rate policy. Stock markets recorded their highest volatility reading in 12 months, as measured by the VIX (CBOE Volatility Index). Markets fell 6.0% in the first week of March, due to concerns over the Ukraine conflict expanding and the impact on European economies. Oil prices surged to US$128 per barrel, which impacts corporate profitability across the stock market. From mid-March, stock markets recovered on easing negative news, from the conflict, to end the month up 2.5% in US dollar terms, but -0.6% in Australian dollar terms.

There has been very little news relating to market fundamentals. March is a quiet month, with few companies releasing financial results. From mid-April, companies start to report profits for the first quarter of 2022, and we’ll get a better idea of the impact of inflation on company profits. China has seen both an increase in government COVID lockdowns and a period in which consumers have chosen to self-isolate, reducing spending. This is likely to impact companies with substantial China businesses, like Nike and McDonald’s. We expect to see companies to start writing off Russian businesses, with accounting costs in the hundreds of millions of dollars, but we wouldn’t expect many in the billions.

The Australian dollar rebounded from 72c in February to end at 75c in March. Firstly, the Australian economy is seen as benefitting from higher commodity pricing. Secondly, the US Federal Reserve was seen as a bit less enthusiastic to raise interest rates. In bad news for homeowners with a mortgage, Australian 10-year bond yields spiked up from 2.1% to 2.8% in the month. This outpaced the rise in US rates, pushing the Aussie dollar up. These rising rates will support the Australian dollar going forward, and could push the dollar up towards 80 US cents if the trend continues.

The Orca Global Fund fell -1.7%1 compared to the MSCI World Index at -0.6%. The negative result was due to European stocks with exposure to Russia, namely Unilever, Danone, Airbus, and Orsted. We’re also seeing increased volatility in French stocks due to concerns that Marine Le Pen is gaining popularity for the upcoming Presidential elections. The Orca Global Fund has been outperforming in April, and as at 31 March 2022 was +2.4%1 ahead of the benchmark over the previous 12 months.

The Orca Asia Fund fell 7.1%1 in March, compared to -5.9% for the MSCI Asia ex Japan benchmark. Chinese technology companies have been hit hard by concerns about Chinese Government restrictions on their business activities, particularly for those that are US-listed, with Alibaba falling -70% over the previous 12 months (April 2021 high to March 2022 low). On 16 March the Chinese Government released a statement supporting economic growth and technology companies. In response the technology sector rallied strongly, with Alibaba +37%, JD.com +36%, and PDD +56% on the day. We are generally underweight this portion of the market, which has over 12% exposure to Chinese technology companies. The benchmark was also driven higher on strong performance of tobacco stocks, which we don’t hold due to ESG concerns. The Orca Asia Fund is +3.2%1 ahead of the benchmark over the previous 12 months to 31 March 2022.

The Orca Global Disruption Fund fell -1.5%1 compared to -1.2% for the MSCI AC World Index. The Fund invests in disruptive themes, with technology stocks marginally underperforming the broader benchmark over the month and impacted by a decline in its Asian stock holdings. The Orca Global Disruption Fund has underperformed by 16.5%1 over the previous 12 months to 31 March 2022, however since inception the Fund has outperformed 3.7%1 p.a.

The coming month will be eventful, with companies reporting profits and the US Federal Reserve releasing an interest rate decision, anticipated to be a +0.5%. We continue to view Global stock markets as well positioned for the long-term investor, but also see recent volatility as an indicator that some caution is warranted.

 Note: 1.Fund performance is quoted net of fees and inclusive of reinvested distributions. Past performance is not a reliable indicator of future performance

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