Market Commentary – February 2022

February 2022 Global Market Commentary

Global equity markets continued to decline in February. The MSCI World Islamic Index dropped by 1.4% while the MSCI EM Islamic Index declined by 2.7%. The Islamic fixed income market was also negatively affected in February, with the Dow Jones Sukuk Index shedding 1.1%.

The main story affecting the markets worldwide in February is the Russian invasion of Ukraine. The heightened geopolitical situation worried investors, leading to further spikes in volatility. Investors were also concerned by expectations of more aggressive tightening measures by central banks, which could dampen growth in favor of controlling inflation.

As a response, the US and its allies imposed economic sanctions on Russia, which include removing Russian banks from the SWIFT network that helps banks execute financial transactions worldwide. US and European countries were also reported to impose restrictions on Russia’s central bank in order to limit its ability to support the Ruble and finance the country’s military efforts. These moves could further isolate Russia from the international financial system.

In the US, the S&P 500 declined by 3% in February while US Treasuries dropped by 0.7%. While US companies registered stronger earnings compared to previous expectations, concerns over the situation in Ukraine and the possibility of tighter monetary policy, led to a risk-off environment in which investors reduce their exposure to risky assets (such as equities) and focus on protecting their capital.

European equity markets were significantly affected by the Russian-Ukraine tensions, as the bloc relies heavily on Russia for their commodity imports, such as crude oil and natural gas. Europe is under pressure to transition away from imported fossil fuels, and instead invest more on the domestically generated renewable energy.

Asia markets (excluding-Japan) continued to be dragged down by regulatory setbacks in China. Chinese regulators issued orders to state-owned companies and financial institutions to check their financial exposure and links to Ant Group, which sparked a rout in China’s technology sector due to renewed crackdown concerns.

In Malaysia, the equity index was also affected by the escalating tensions in Europe. However, plantation stocks outperformed due to the surge in crude palm oil prices which topped RM8,000 per tonne for the first time, as consumers rushed to source the oil amid the shortage in sunflower oil caused by the Russian-Ukraine conflict.

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