Global stocks and bonds are set to post losses of more than $30 trillion for 2022 after inflation, rising interest rates and the war in Ukraine caused the heaviest losses in asset markets since the global financial crisis.
The broad MSCI World index of developed and emerging market shares has lost nearly a fifth of its value this year, the biggest decline since 2008.
Bond markets also suffered a heavy sell-off: the yield on 10-year US government bonds, a global benchmark for long-term borrowing costs, rose to 3.9 percent from about 1.5 percent at the end of last year — the biggest annual increase in Bloomberg records dating back to the 1960s.
“For years we had a situation where stocks and bonds were the same game because they were driven by low inflation and low interest rates,” said Luca Paolini, chief strategist at Pictet Asset Management. “The lesson of this year is that there is a day of reckoning, and when it comes, it’s brutal.”
The market value of all globally traded companies fell by $25 trillion, while the data provider’s Multiverse index, which tracks global government and corporate debt, fell almost 16 percent, or $9.6 trillion, in market value, according to Bloomberg. To provisional calculations at the close of Thursday’s market.
Antonio Cavarero, chief investment officer at Generali Insurance Asset Management, described the combined downward trajectories of stocks and bonds as a “game changer for investors.” That contrasts with 2008, when bond prices rose while the crash was concentrated in stocks, dealing a painful blow to many investors who built portfolios hoping that fixed-income holdings would act as ballast when stock markets fell.
The losses came after central banks, led by the US Federal Reserve, raised borrowing costs to control the worst inflation in decades.
These rate hikes dramatically ended the era of cheap money after the financial crisis, which drove yields on safe-haven government debt below zero and boosted the prices of the riskiest assets, especially post-Covid. 19 pandemics.
Russia’s intervention in Ukraine in February also disrupted supply chains, causing a serious wave of inflation. The U.S. dollar’s 8 percent gain against a basket of half a dozen major peers put further pressure on many markets.
Rising borrowing costs have also wiped trillions of dollars off the value of US tech titans, leading the pandemic-era rally that began in 2020.
Electric car maker Tesla has lost nearly two-thirds of its value this year, while chipmaker Nvidia has fallen 50 percent. US tech heavyweights Apple and Microsoft are down almost 30 percent, while Google parent Alphabet is down nearly 40 percent and Facebook owner Meta is down 64 percent.
Overall, the blue-chip U.S. S&P 500 is down 21 percent this year, while the tech-focused Nasdaq Composite is down 34 percent. Both indexes are on track to post their worst annual performance since 2008.
According to the Financial Times, the value of the cryptocurrency market has fallen by $1.7 trillion since the beginning of 2022, which shows how the speculative fervor that existed in 2020 has exploded this year.
China’s soaring stock markets have also taken a hit as the economy has been crippled by strict zero-Covid measures, and the country is now battling a major wave of infections as it reopens. In Shanghai and Shenzhen, CSI 300 shares fell 22 percent in local currency and 28 percent in dollar terms.
The MSCI Europe index fell by about 16 percent in dollar terms and 11 percent in euros.
Commodities have been among the rare gainers in global markets this year: the broad S&P GSCI rose 8 percent as energy and agricultural prices posted strong gains.
London’s FTSE 100 index, which is heavily weighted against energy, mining and pharmaceuticals companies that have outperformed in this year’s market turnaround, is up slightly in sterling terms so far.
The intensity of this year’s market swings underscores the scale of the regime change facing global investors accustomed to low interest rates.
Higher interest rates reduce the appeal of holding assets like stocks and riskier debt, as investors can earn better returns with cash or ultra-safe assets like U.S., German or Japanese government bonds. As higher rates make borrowing more expensive, they also put pressure on the broader economy by tightening financing conditions for companies and businesses.