Global Market

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Global equity and bond markets experienced a rather difficult 2022 under the pressure of the Russia-Ukraine war and global inflation. Central banks in developed countries, especially the eurozone, were trapped in the dilemma of battling inflation and economic growth. The current monetary tightening policies aiming at restraining long-term inflation also brings in significant recessionary pressures. The fourth quarter experienced some relief in the market. The MSCI Asia ex-Japan Index increased 11.4%, the MSCI Europe ex-UK Index increased 11.1%, the FTSE All-Share Index rose 8.9%, and the US S&P 500 was up 7.6%.

 

Global sovereign bond prices fell by 16.8% over the year. UK Gilt prices fell by 25.1% in 2022, with a modest recovery of 1.7% in the fourth quarter. US Treasury prices fell by 12.5% over the year, while German Bund prices dropped by 17.2%. Global investment-grade corporate bond prices, on the other hand, fell by 16.7%.

 

As of 30 Dec 2022:

 

UK 10 Year Gilt Yield 3.67%

US 10 Year Treasury Yield 3.88%

Germany 10 Year Bund Yield 2.57%

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UK Market

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UK gross domestic product (GDP) is estimated to have fallen by 0.3% in 2022 Q3 (July to Sept), downwardly revised from a first estimate fall of 0.2%. In output terms, the services sector grew by 0.1% while the production sector fell by 2.5%. Bank of England now expect UK GDP to decline by 0.1% in 2022 Q4, 0.2 percentage points stronger than in the November Report. Household consumption remains weak and most housing market indicators have continued to soften. Surveys of investment intentions have also weakened further.

 

Inflation in the UK eased slightly to 10.7% in November, down from 11.1% in October as measured by the Consumer Prices Index (CPI). This was largely because transport costs (mainly fuel) didn’t rise as fast as in previous months. The Bank’s Monetary Policy Committee raised the Bank’s base rate on 15 December for the ninth meeting in a row, taking it to 3.5%. Further rate rises are expected in the coming months.

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Ark Insights

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In 2022, Ark's High Conviction Portfolio returned 6.13%, again managed to beat its benchmark FTSE 100 which returned 5.56% over the year. The portfolio has achieved a total return of 53% since its inception on 1 January 2019.

 

The UK stock market has outperformed its peers in 2022 thanks to its high exposure to commodity producers and defensive consumer staples and low exposure to high technology companies. While the domestic environment remains challenging, the weakness of the sterling continues to provide some protection for equity markets, as about 75% of all FTSE companies' revenues come from outside the UK. However, the FTSE 250 Index, a domestically oriented small-cap index, fell by almost 20% in 2022, reflecting uncertainties in the country's economic outlook.

 

On the bright side, the market has seen signs of peaking inflation. With a widely expected decline in inflation, this year may provide a more attractive environment for equities and bonds from a valuation perspective.

 

As always, our Investor Relations team would be more than happy to help you with any queries.

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The views expressed in this update are not intended as an offer or solicitation for the purchase or sale of any investment or financial instrument. The views reflect the views of Ark Investment Management at the date of this document and, whilst the opinions stated are honestly held, they are not guaranteed and should not be relied upon and may be subject to change without notice. Investments entail risks. Past performance is not necessarily a guide to future performance. There is no guarantee that you will recover the amount of your original investment. The information contained in this update does not constitute investment advice and should not be used as the basis of any investment decision. Any references to specific securities or indices are included for the purposes of illustration only and should not be construed as a recommendation to either buy or sell these securities or invest in a particular sector. If you are in any doubt, please speak to us or your financial adviser as appropriate.

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