Last year was challenging for investors. It marked the end of the 40-year bull market in government bonds, the end of the era of cheap money and the re-emergence of inflation. In addition, geopolitical risk came to the fore, triggered by Russia’s invasion of Ukraine.
Then higher energy prices exacerbated inflation. Russia’s use of gas as a weapon against the West caused a spike in gas and electricity prices over the summer. Central banks raised interest rates to bear down on inflation but often appeared to be behind the curve. Equities suffered as central bank liquidity dried up. Highly valued growth stocks, the darlings of the previous 10 years, suffered the most as investors baulked at the high valuations. Value investing staged a comeback, with lowly valued energy and mining stocks benefiting the most.
The US 10-Year Treasury Bond yield rose from 1.5 per cent in January 2022 to 3.8 per cent at the end, having touched 4.3 per cent in October. In the UK, the 10-Year Gilt had a more dramatic fall from grace, jumping from 1.0 per cent to 3.7 per cent, via 4.5 per cent at the peak of the Tory party leadership crisis.