In the face of this uncertainty, and the unwillingness of major Western central banks to suspend the battle against inflation, investors continued to cut risk, increase their exposure to China’s rebound story and steer cash into liquidity funds.
How much longer will the war in Ukraine go on? How much further will central banks go before they deem inflation contained? How much damage will the latest US debt ceiling standoff do? How widely will the benefits of China’s anticipated economic rebound be felt? What direction will Japanese monetary policy take?
Actions spoke louder – to equity investors – than words coming into February, with the fact that the latest interest rate hike by the US Federal Reserve was only 25 basis points, boosting flows to US Equity Funds and other groups despite the accompanying verbal warning that the battle against inflation is “not fully done.”
Evidence that inflation is falling and global growth is stalling gave EPFR-tracked Bond Funds a shot in the arm during the first full week of January. Ahead of December’s CPI number, which showed US inflation grew at a 13-month low of 6.45% in the final month of 2022, investors committed over $17 billion to all Bond Funds.
This blog will examine the impact the conflict between Russia and Ukraine has had on global energy markets and the calls investors have made during 2022.
High energy prices have been a norm for 2022 with consistent pressure from the Russia-Ukraine conflict as it leans into the 300th day mark, while others are feeling the “need to rapidly move away from burning fossil fuels to stop average global temperature reaching dangerous levels.” Along this path, the US made a major breakthrough in the fourth quarter by producing a “net energy gain” from a fusion reaction, meaning more energy was generated than used to start the fusion process. Likewise, this process results in “no long-lived radioactive waste” and emits no carbon, a drastic climate-friendly change to the typical nuclear power plants. 2023 and the years to come will continue to be a “global race for next-generation clean technology” and energy.
Overall, the second week of December 2022 saw all Equity Funds record a collective inflow of $17.9 billion while Bond Funds absorbed $2.3 billion.
Russia’s assault on Ukraine, which started on Feb. 24, sent investors scrambling for cover while they adjusted to the rapidly changing outlook for energy and financial markets, global supply chains and the security of Europe. Going into March they pulled record-setting sums out of Europe Equity Funds, extended Europe Bond Funds longest outflow streak since 4Q18 and redeemed more than $5 billion from Europe Money Market Funds.