March 2022 Global Market Commentary
Developed market equities (as represented by the MSCI World Islamic Index) rebounded in March, gaining 3.0% on a monthly basis. Meanwhile, emerging markets equity (as represented by the MSCI EM Islamic Index) and global sukuk (as represented by the Dow Jones Sukuk Index) continued their monthly declines by 1.5% and 2.9%, respectively.
The first quarter of 2022 has been challenging for both equity and fixed income securities. Markets have been digesting the deteriorating conflict in Ukraine along with the Federal Reserve (the “Fed”) getting the first rate hike of the year under its belt.
The Fed Chairman, Jerome Powell said the central bank could move “more aggressively” to raise rates to fight inflation, possibly hiking by more than 25 basis points over the course of its meetings this year.
This trend of central bank monetary policy normalization was also seen in other markets including the United Kingdom, Brazil, Taiwan, Korea and Hong Kong, as they all announced rate hikes in recent months. One notable exception is Japan which maintained its easy monetary stance and focused on growth rather than inflation, which is relatively low at around 1%.
In China, Q1 2022 was rough for equity markets. Investors reacted negatively to the lockdown from the Omicron outbreak in Shanghai, Shenzhen and other cities that shut down manufacturing plants, exacerbating global supply chain constraints.
Going forward, tighter Fed policy and higher interest rates globally are expected to remain as an instigator of stock market volatility in the short to medium term. Company valuations may be compressed as interest rates edge higher, but ample earnings’ growth may be the fuel source for positive equity market returns ahead.