December 2021 Global Market Commentary
The global market picked up in December, with the MSCI World Islamic Index gaining 5.3% and the MSCI EM Islamic Index rising by 4.2%. This caps a strong 2021 for the equity markets with a return of 19.7% for the MSCI World Islamic Index largely boosted by the returns from developed markets such as the US, Europe, and Japan.
December started slowly, as investors were worried about rising interest rates and a surge in COVID-19 cases. However, equities rose in the last week of December as concerns over the Omicron variant eased with investors seeming to indicate their belief that it will not weigh on the economic growth of the US.
In the US, the Federal Open Market Committee (FOMC) announced that it will double the rate at which it reduces monthly asset purchases. Specifically, the Federal Reserve will reduce its monthly purchases of US Treasury securities by USD20 billion each month and its purchases of US agency securities by USD10 billion each month. The FOMC also signalled a strong likelihood of an interest rate hike in 2022. Both policy decisions affirm a departure from the very accommodative monetary policies enacted during the pandemic in favor of bringing inflation under control.
Meanwhile, the European Central Bank decided to cut the bond purchases under its Pandemic Emergency Purchases Programme, but vowed to continue its unprecedented monetary policy support for the Eurozone economy into 2022. Although the return of COVID-19 restriction measures and skyrocketing inflation put investors on guard, European equity markets ended the month higher as these concerns eased.
Chinese equities fell in the last week of December as authorities imposed a lockdown in Xi’an after a coronavirus outbreak in the city, leading to investors worrying about whether the containment will worsen supply chain issues again. The outbreak may slow down China’s economic growth. Therefore, the People’s Bank of China is expected to loosen its monetary policy in 2022 to support the real economy.
The Malaysian equity market continues to be a laggard in the region for 2021, with a negative return for the KLCI at -3.7%. A number of lockdown measures earlier in the year have slowed down the economy. While the economic prospects improved in October and November, the Omicron variant and terrible floods introduced further setbacks as we enter 2022.