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Global stock market and funds sector review – the effects of the Ukraine crisis

We look at how different economies and regions around the globe have been coping, and how global funds and stock markets have performed.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Over the past two years, the coronavirus pandemic has dominated headlines. Recently, a different kind of devastation has taken centre stage, and one lots of us would not have expected in this day and age – war in Europe.

In this quarterly global sector review, we reflect on Russia's invasion of Ukraine, and how different economies and stock markets have recently performed.

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

The impact of war

On 24 February, Russia launched a full-scale military invasion of Ukraine. It's had a devastating impact, with civilian casualties mounting and millions of Ukrainians fleeing the country in seek of refuge.

The human impact of this war is what matters most and will be front of mind for everyone. Though in this review, we'll focus on the investment and wider impact to different economies.

Measures have been introduced by countries across the globe to try to hinder Russia's economy. This has led to some retaliation though, and those implementing sanctions are often hurt in return.

The US has banned all Russia oil and gas imports, and the UK will phase out oil imports by the end of this year.

The EU is more reliant on Russia for its energy, with around a quarter of its oil and 40% of its gas coming from Russia. It aims to switch to alternative supplies and be independent from Russian energy before 2030.

Western countries have also frozen the assets of Russia's central bank, to stop it using currency reserves. This has led to weakness in the Russian rouble and a rise in inflation in Russia.

Ultimately, it's impossible to know when the war will end and how financial markets will react. That said, it's likely global economies will continue to feel the pressure and rethink how business is carried out in some sectors.

Lots of countries were already contending with rising inflation, but things have recently taken a turn for the worse.

In March, the US Federal Reserve raised interest rates by 0.25% after inflation hit 7.9% in February – a 40-year high. The rate rise was widely anticipated by the market and further rate rises are expected in the coming months.

In the UK, the Bank of England recently announced it expects inflation to rise to around 8% over the next few months. Perhaps to even higher levels later in the year.

This could be challenging for investors aiming to protect capital from the effects of inflation and who are looking to grow their money in real terms.

Alongside all of this, Covid-19 continues to lurk in the background. In the UK, while official restrictions are no longer in place, the virus remains rife and still has the potential to impact sectors like travel and hospitality.

Further afield, China is struggling to cope with its zero-Covid policy. At the time of writing, its biggest city, Shanghai, has been locked down in an effort to stem rising cases.

There are question marks over how sustainable this strategy is – Shanghai alone has a population of 25 million and containing the more infectious Omicron variant won't be easy. It's led to factory shutdowns, and as China is a major exporter, this could once again lead to global supply chain disruption.

How have global markets performed?

It was a volatile start to 2022 for markets, with investors concerned about the potential for rising interest rates and inflation. Things got worse in February when the war on Ukraine broke out, leading to significant amounts of uncertainty and a renewed market setback.

Despite the gloomy backdrop, most global markets rebounded over the month to the end of March 2022. It seems lots of investors have since shrugged off the uncertainties.

There's currently a backdrop of low interest rates, low bond yields, and the potential for markets to continue to receive support from global central banks.

Global shares could be an option for investors looking for a home for their savings and the potential for long-term growth. Share prices can be volatile though, and there's no guarantees over stock market returns.

Over the past year, value investing has made a comeback. This is a focus on companies where their share price is not reflective of the true value of the businesses.

This could be based on things like the value of their assets not being fully appreciated, or their future earnings potential being underestimated.

On the other hand, growth investing hasn't done as well, especially since the end of 2021. This style of investing focuses on companies with high growth prospects or the potential for higher earnings in future years. Rising inflation is typically a headwind for this style, as it reduces the value of future cashflows.

Oil & gas and energy companies, which have remained in the value camp, have been some of the strongest performers over the past year. The US ban of Russian oil and gas, and the UK planning to phase out imports, has helped push up commodity prices, given Russia is one of the world's largest exporters.

This has also benefited the UK's FTSE 100 index, which has a large exposure to big oil & gas companies, which has grown 16.08%* over the past year. The UK was once again beaten by the US though, with the FTSE USA rising 19.30% over the year. Past performance isn't a guide to the future.

Asian and emerging stock markets have had a tougher year, held back by China which makes up a large part of these markets.

After further regulation from China's authorities over the past year, the Chinese stock market fell 28.16%. It's also struggled as a result of fresh lockdowns and the potential impact on global supply chains.

Chart showing one year stock market performance across different countries and sectors

Scroll across or rotate your device to view the full chart below.

Past performance isn't a guide to future returns. Source: *Lipper IM, to 31/03/2022.

Sroll across or rotate your device to view the full table below.

Annual percentage growth Mar 17 – Mar 18 Mar 18 – Mar 19 Mar 19 – Mar 20 Mar 20 – Mar 21 Mar 21 – Mar 22
FTSE China 18.48% 1.09% -0.43% 30.62% -28.16%
FTSE USA 1.76% 17.72% -2.32% 42.72% 19.30%
FTSE World / Oil & Gas -5.23% 10.94% -42.62% 39.01% 53.11%
FTSE 100 0.22% 7.69% -18.39% 21.91% 16.08%

Past performance is not a guide to the future. Source: Lipper IM, to 31/03/2022.

There's almost always a reason not to invest – in the last few years alone we've seen Brexit, the pandemic, and war. The truth is, there's almost never a bad time to put your money to work, as long as you're investing for the long term – that's five years or longer.

Taking a long-term approach with your investments helps cut out the short-term noise and with it, the worries about finding the right time to invest.

How have our Wealth Shortlist funds performed?

Global funds on the Wealth Shortlist delivered different performances over the past year, with some faring 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.

Fidelity Index World was the best-performing Wealth Shortlist fund in the Global sector over the year. This fund aims to track the performance of the MSCI World Index, which is made up of companies in developed markets, such as the US, the UK, Europe and Japan. It's benefited over the past year from the strong performance of the US market and no investments in emerging markets.

FIND OUT MORE ABOUT Fidelity Index World INCLUDING CHARGES

Fidelity Index World KEY INVESTOR INFORMATION

ASI Global Smaller Companies was the weakest performer. The managers use a growth-focused approach, which as mentioned has been out of favour, particularly during the first few months of this year. Higher-risk smaller businesses also haven't done as well as larger ones over this time, which has also hampered returns.

The fund is likely to perform better when growth investing is in favour, but not so well when value companies are in vogue. The fund, and its managers, have a good long-term record, and we rate the team's disciplined investment approach that has been used across a range of funds over the years.

FIND OUT MORE ABOUT ASI Global Smaller Companies INCLUDING CHARGES

ASI Global Smaller Companies KEY INVESTOR INFORMATION

Scroll across or rotate your device to view the full table below.

Annual percentage growth Mar 17 – Mar 18 Mar 18 – Mar 19 Mar 19 – Mar 20 Mar 20 – Mar 21 Mar 21 – Mar 22
Fidelity Index World -0.16% 12.60% -4.10% 37.22% 17.35%
ASI Global Smaller Companies 18.56% 3.65% -12.15% 59.50% -2.22%
IA Global 2.86% 8.77% -5.60% 40.43% 8.96%

Past performance isn't a guide to the future. Source: Lipper IM, to 31/03/2022.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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