Also in March, Russia’s invasion of Ukraine was the dominant factor in financial markets. Commodity prices ran wide by more than 10%, further fueling inflation. The scenario of stagflation, where stagnant economic growth is accompanied by inflation, is becoming increasingly realistic. Due to the corona virus, a number of regions in China went back into lockdown. This too has an upward effect on inflation, as it stalls the supply of goods from China. High inflation puts pressure on central banks to raise interest rates, resulting in falling bond prices. Equity markets showed a turn mid-month. Indeed, in addition to a flight from falling bonds, equities can serve as protection against inflation.
Further to our March 18 announcement, we hereby announce that our asset manager Aegon AM is excluding Russian and Belarusian companies from its funds as of April 1.
Shares
The broad equity index MSCI World rose more than 3% last month. However, the differences between countries and regions were very large. Europe rose 0.8%, North America 4.5%. China (-7.1%) pulled the emerging markets index down with it (-2.2%). Value and growth stocks hardly underperformed each other this month. In terms of sectors, there were clear distinctions; energy and utilities did well because of high oil and energy prices. Financials and luxury consumer goods were laggards this month.
Bonds
Interest rates continued to rise across a broad front. The 10-year US interest rate rose 0.51% to 2.34%; and in Germany it was up 0.42% to 0.55%. In the US, the difference between the 2-year rate and the 10-year rate is closely watched. If the 2-year rate quotes higher than the 10-year rate, this could be a harbinger of an upcoming recession. The risk premium for less risky and more risky corporate bonds fell to 1.29% (-0.19%) and 4.12% (-0.46%) respectively, resulting in positive returns for March.