Weekly review 21 March 2022: Which stocks have fared best?


What did last week’s markets look like in general?

Last week, investment markets largely developed favourably, with hopes of a rapid resolution to the crisis in Ukraine arising in the markets. Nordic and European equities reacted the most dramatically to the start of the war, but they also showed the biggest positive reaction last week. Positive development was also seen in US equities, if more moderate than in Europe. The Chinese market was a roller coaster again last week, and the emerging markets which, led by China, had developed favourably in the early part of the year, have now come down to the same levels as other indices.

Last week, as expected, the US central bank Fed raised its key interest rate by a notch, i.e. 0.25 percentage points.

Corporate bond spreads declined last week. The prices of oil and gold fell and the dollar depreciated against the euro.


Why was volatility in the Chinese market so high last week?

The Chinese equity market was a roller coaster last week, as the slide of technology stocks, which had begun in the week before the last, culminated with a drop of around -11 per cent. On Wednesday, however, surges of around +30 per cent were seen in technology stocks after the central bank signalled its readiness to support market performance.

The Chinese technology sector was weighed down by, among other things, concerns over tightening regulation and the US authorities’ plans to delist five Chinese companies from the New York stock exchange. In addition, Covid-19 infections and deaths are on the rise in China, and restrictions were re-introduced last week in many Chinese cities. The restrictions will suppress consumer spending opportunities, which can also somewhat hamper China’s economic development.

The depression of the Chinese equity markets is partly attributable to the fact that the markets are pricing in a growing probability of sanctions against China if the country were to support Russia’s military action in Ukraine. The probability of China supporting Russia is estimated to be low, however.


The Fed held its March interest rate meeting on Wednesday. What news did we get?

As expected, the US central bank Fed raised its key interest rate last week by a notch, i.e. 0.25 percentage points, for the first time since 2018.

The Fed is expected to carry out several more interest rate hikes this year. The central bankers themselves also signalled several hikes for the remainder of the year, although there was greater divergence between individual central bankers’ estimates than usual. Whereas in December the most aggressive expectations predicted that the interest rates would be at 1.25% at the end of 2022, the most moderate expectation at last week’s meeting was 1.50% and the most aggressive as high as 3.25%. On average, the central bankers expect the key interest rate to be 1.75–2.00 per cent at the end of the year.

Shrinking the balance sheet will likely be on the cards over the next few months, although Fed Chair Powell did not comment on this at Wednesday’s meeting.


How have fixed income investments performed?

The rise in interest rates has depressed returns on fixed income investments, and since the war broke out in Ukraine, widened spreads have also had a negative impact on fixed income investments. The interest rate level has been on an upward trend after the ECB and the Fed confirmed that monetary policy will be tightened regardless of the war in Ukraine. Returns on US treasury bonds were also reduced by the depreciation of the dollar last week.

Corporate bond spreads have shown considerable price volatility, reflecting increased uncertainty. Last week, corporate bond spreads took a downward turn as the markets hoped for a quick resolution to the crisis. The narrowing of spreads, in contrast, had a slight positive impact on riskier high yield bonds. In investment grade bonds, the change in the level of interest rates has had a bigger impact on performance.


What does the situation currently look like for oil and gold?

Equities and fixed income investments have not been the only ones to show volatility in recent times.

Last week, the price of oil came down from its peaks, but it has started to rise again over the past few days. Brent oil is currently at around USD 108.

The price of gold also came down last week. Gold is traditionally considered to be one of the safe havens, and at the start of the Ukraine crisis, it was just that. As risk appetite increased, the price of gold decreased and even now, the price of gold has reflected hopes of a quick resolution.


Which stocks have performed best?

Previously, the relative development of sectors has correlated with interest rates; when interest rates have risen, growth stocks, for example, have usually declined and cyclical stocks have risen. Since the Ukraine war started, performance no longer follows as clear a pattern; instead, the markets now see several possible developments.

The best performing sectors have been energy and cyclical sectors, such as financials and industrials. The best performing sectors now also include providers of essential commodities and services, such as consumer staples and utilities, which are typically sensitive to interest rates, meaning that they should show weak performance when interest rates are rising.

Growth companies and small-cap companies are also showing signs of overperformance again. Early in the year, companies with high dividends performed best, but they have become less successful. No overlying trend can be seen at the moment, and the past year’s high-performing momentum stocks have fared less well.


Nothing presented here is or should be taken as an investment recommendation or solicitation to subscribe for, buy or sell securities. When making investment decisions, the investor must carefully familiarise themselves with the information given on the financial instruments and understand the related risks. The investor must base their decision on their own assessment, goals and financial situation. Risk is always inherent in investment activities. The value of the investment instruments may increase or decrease. The past performance of investment instruments is no guarantee of future performance.

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