Unfortunately, after a good start in January, returns for all cohorts were negative in February. Inflation was again the dominant theme and the latest figures showed that inflation remains stubbornly high after all. As a result, government bond yields went up along with it. This raises expectations that central banks will want to keep policy interest rates at higher levels for a long(er) time to curb inflation. The euro quoted 1.06 against the U.S. dollar, losing some ground from last month.
Shares
Stock market outcomes were mixed and not very large in February. The MSCI All Countries World Index fell 0.5% (measured in euros) in February, with emerging markets (-4.2%) doing significantly less than developed markets (-0.1%). Within the latter group, it was Europe that performed best (+1.8%). North America was narrowly negative (-0.2%) and Japan yielded slightly more (-1.5%). Within emerging markets, it was Asia (-4.6%) and Latin America (-3.9%) in particular that contributed to the negative returns.
In terms of style, things were fairly close last month, with “growth” (-0.2%) doing slightly better than “value” (-0.9%). At the sector level, it was IT (+2.0%) and manufacturing (+1.3%) that led the way, and it was the materials and real estate sectors that were on the downside (both -3.5%).
Bonds
In February, interest rates rose across breadth and different maturities. For example, German 10-year interest rates rose 0.37% to 2.65%, and in the U.S. it was slightly more (+0.42% to 3.92%). Risk premiums hardly changed in February. The premium for less risky corporate bonds was slightly lower (-0.04% to 1.47%), as was the premium for more risky corporate bonds (-0.06% to 4.54%). For emerging market government bonds, there was a slight increase (+0.03% to 4.47)%.