Global stock market and funds sector review – the fight on Omicron and inflation

With effective vaccines shoring up consumer confidence, sentiment was high going into 2021. Since then, we’ve experienced all-time stock market highs, elevated inflation and a wave of new companies turning to public markets to fuel their next stage of growth. Needless to say, 2021 did not disappoint.

In this quarterly sector review, we reflect on how different economies and stock markets around the globe have been coping with Omicron and what could be next for inflation.

This article isn’t personal advice. If you’re not sure whether an investment is right for you, please ask for financial advice.

The threat and impact of Omicron

The most recent Covid-19 variant, Omicron, has continued to wreak havoc on livelihoods, supply chains and the health of the global economy. Cases in the world’s largest economy, the US, have entered uncharted territory alongside other countries like France, Australia, and the UK.

We’ve already seen governments impose restrictions once again and additional measures to halt the spread seem increasingly likely.

While this is likely to slow the recovery, the variant doesn’t look like it has the potential to de-rail progress entirely. Further mutations of the virus are a constant risk, but with around 50% of the world fully vaccinated and additional boosters being rolled out, we’re now in a much stronger position than we have been before.

However, that’s not the case for everyone. Vaccination rates vary across the globe, meaning some areas are going to struggle more than others. African countries like Ethiopia, Nigeria, and Cameroon have double jabbed less than 5% of their populations, for example.

A period of transition

Covid-19 cases haven’t been the only figure surging. Inflation continues to rise in lots of economies around the world and economists are revising their figures for 2022 upwards. 

Eurozone inflation hit 4.9% in November which is the highest level since the Euro was established over 20 years ago. It’s a similar story in the US and UK with the consumer price index (CPI) inflation reaching 6.8% and 5.4% respectively.

But what’s causing these sharp spikes?

Supply chain disruption onset by the pandemic is one factor. Delivery times for suppliers are stretched which hinders a company’s ability to produce and sell their goods or services. This just leads to even higher prices for consumers.

Another factor is how governments and central banks around the world have dealt with the pandemic. Many stepped in to provide generous support through lower interest rates, unemployment benefits and a wave of spending to stabilise activity. Although their efforts helped keep economies afloat, it’s also added to the pressure on prices.

All eyes are now on policymakers to intervene and take control of the situation. Talks of taking the foot off the economic accelerator are well underway as central banks start to take a more aggressive stance towards fighting inflation. The brakes aren’t on quite yet, but they could be soon.

For instance, the US Federal Reserve expect to make three interest rate hikes in 2022.

Rate hikes have already begun in the UK with the base rate rising from 0.1% to 0.25%, making the Bank of England the first central bank in the G7 to increase rates since the beginning of the pandemic. 

How have global markets performed?

Despite the gloomy backdrop, global stock markets have seemed unphased with the majority finishing the year positively. Over the past 12 months, the FTSE World Index grew by 22.07*%. This marks the third consecutive year of double-digit growth. Remember though, past performance isn’t a guide to the future.

Global stock market performance (% growth)

Scroll across to see the full chart.

Past performance isn’t a guide to future returns. Source: *Lipper IM, to 31/12/2021. 

Over the pond, the US continues to steal the show with the FTSE USA Index growing by 28%. This growth was supported by the big tech names that investors are now all too familiar with.

Europe was another strong performer. The FTSE Europe ex UK index gained 17.64% during 2021. Some of the biggest risers were the Netherlands, Norway, and France.

Closer to home the FTSE All-Share returned 18.32%, a much better reading than -9.82% for 2020. The transportation, financials, and oil & gas sectors were some of the best performers.

Asia and emerging markets on the whole had a tougher year than their western peers. Over the past 12 months, the FTSE Emerging index grew by just 1% while the FTSE Asia Pacific ex Japan index fell by 0.10%. China, which makes up a big chunk of both indices, weighed on returns.

Chinese shares started the year that marked the 100th anniversary of the Chinese Communist Party in fine form and looked to continue where they left off in 2020. But since its peak in the middle of February, the market has fallen. This makes it one of the weakest performing regions, with the FTSE China declining by -17.67% during 2021. Industries like software, technology and consumer services were among the biggest laggards.

Not all emerging economies have struggled though. FTSE India returned 30.45%, while rises in the price of oil helped drive FTSE Russia up 24.97% over the year. That said, the final quarter was notably weaker as concerns grow surrounding their hostile relations with Ukraine.

Past performance is not a guide to the future. Source: Lipper IM, to 31/12/2021.

How have our Wealth Shortlist funds performed?

Global funds on the Wealth Shortlist all delivered positive returns during 2021, but some fared better than others. We expect this given they use a variety of different styles and investment approaches. If all funds in a sector are performing well at the same time, they're probably investing in similar areas. Those areas won't perform well all the time, so it can be painful when they're out of favour. Remember, this is over a very short time frame. Past performance isn’t a guide to future returns.

All investments fall as well as rise in value, so you could get back less than you invest. For more details on each fund and its risks, please see the links to their factsheets and key investor information below.

Investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

Artemis Global Income was the best performing global Wealth Shortlist fund over the past 12 months, returning 26.48%* versus 19.20% for the IA Global Equity Income sector average. Performance over the past year has been helped by positive sector selection, like financials. The fund’s value style has also been a tailwind for returns with the vaccine providing a much needed jab for lots of companies considered to be ‘cheap’.

The managers, Jacob de Tusch-Lec and James Davidson, take a contrarian approach and invest in areas that others might avoid. The fund invests in a range of companies, from more mature, predictable companies to those that are more sensitive to how the economy is doing.

Find out more about Artemis Global Income including charges

Artemis Global Income Key investor information

The weakest performer was Fidelity Global Dividend. Although the fund grew by 12.84% over the past 12 months, stock and sector selection weighed on returns, particularly within consumer staples and financials. Having much less invested in the US, where dividends are harder to come by, compared with the broader market was a headwind. 

Dan Roberts, the fund’s manager, focuses on individual company analysis, paying close attention to their financial accounts to make sure the company dividends are sustainable. He also assesses how a company has fared during different market conditions, looking to find more predictable revenue streams and resilience. He prefers companies with simple business models, sensible management teams and healthy balance sheets, while avoiding companies with too much debt. Valuations are also important as he doesn’t want to overpay for a company’s future growth, that’s why he tends to invest less in the US market.

Find out more about Fidelity Global Dividend including charges

Fidelity Global Dividend Key investor information

Global equity income – is it time to look again?

Past performance is not a guide to the future. Source: *Lipper IM, to 31/12/2021.

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