The value of the Australian Dollar increased against major foreign currencies, decreasing overseas investment returns when measured in Australian dollar terms. International and Australian fixed interest markets posted negative returns over the month due to rising long term interest rates.

The tension between Russia and Ukraine morphed into a military confrontation/war towards the end of February. The conflict is widely being regarded as the largest in Europe since World War 2. The month began with diplomatic talks amongst global leaders and the President of Russia, Vladimir Putin, who was adamant that Russia did not plan to invade Ukraine. Russia began joint military drills with Belarus, to the north of Ukraine, in the middle of February and on 21 February Putin signed a presidential decree recognising the independence of the Ukrainian separatist regions of Donetsk and Luhansk. The following day, Russian troops crossed the eastern-Ukrainian border and seized the separatist regions. A brief pause was followed by a continued Russian expansion that attacked targeted regions all over Ukraine including the capital Kyiv. The Ukrainian President, Volodymyr Zelenskyy, declared martial law and broadened State of Emergency powers to prohibit men between the ages of 18 and 60 from leaving the country so they can fight and defend Ukraine [1].

Initial sanctions from most global leaders were seen as quite light, except for German Chancellor, Olaf Scholz, who announced the indefinite suspension of the long-term project of the Nord Stream 2 pipeline which links Russian natural gas directly to Germany. As Putin pushed further into Ukraine, beyond the separatist regions, the level of sanctions increased quickly from many countries around the world. The most punitive sanctions include some Russian banks being removed from the SWIFT global banking system and, in an unprecedented move against a G20 country, the Russian Central Bank was also targeted with sanctions. Russia has extensive foreign currency reserves totaling over US$600 billion, however, the US, UK, Canada, France, Germany, Italy and the European Commission said they would block Russia’s central bank from accessing around half the reserves [2]. In response to the sanctions and military aid being given to Ukraine, Putin put his strategic nuclear forces on “high alert” [3]. The Russian Central Bank more than doubled interest rates from 9.5% to 20% on 28 February to combat the collapse of the Russian Ruble, which fell 26.4% over the month of February.

US CPI rose to 7.5% year-on-year for the month of January (results published on 10 February), the highest reading since 1982, 40 years ago. Expectations of US CPI were 5.8% for the month of January, 1.7% below the reported number. The Bank of England hiked interest rates by 0.25% to 0.5% on 3 February in response to persistent inflation. The policy from the Bank of England diverged from the European Central Bank (ECB) which kept rates unchanged at 0%. The President of the ECB, Christine Lagarde, stated “Inflation is likely to remain elevated for longer than previously expected, but to decline in the course of this year” while also adding “… risks to the inflation outlook are tilted to the upside, particularly in the near term” [4].

The 24th Winter Olympic Games, hosted in Beijing China, was contested from 4 – 20 February. Ninety-one nations competed, with Haiti and Saudi Arabia making their Winter Olympic debuts. Australia won its largest Winter Olympic medal haul ever with four medals, including one gold. Norway continued its dominance at the Winter Olympics, winning 37 medals in total, including 16 gold, the most of any country in both categories.

COVID-19 

 Reported global coronavirus case numbers exceeded 436 million at the end of February 2022 (an increase of 56 million in one month), with cumulative global fatalities exceeding 5.9 million at the end of the month [5]. Reported global daily new cases of infection dropped steadily throughout the month as the Omicron variant began to burn itself out. Daily new cases of infection have dropped from a high of 3.8 million on 20 January to under 1.5 million by the end of February. Four of the top 10 countries (by total reported cases of infection) saw a new peak in daily cases: Brazil, Russia, Germany, and Turkey.

The global vaccine rollout continued throughout February with 62.7% of the world’s population having received at least one dose by the end of the month. 10.7 billion doses have now been administered worldwide [6]. The Australian Government opened international borders on 21 February. Specifically, all visa holders who are fully vaccinated can travel to Australia without a travel exemption [7]. This extends to tourists and business travelers. States continued to ease restrictions and open up throughout the month of February. For example, NSW, Victoria and Tasmania abandoned the requirement to sign into the COVIDSafe app using a QR code in the majority of venues.  

Equities

All major foreign equity markets produced negative returns in the month of February, with the exception of the United Kingdom’s (FTSE 100 Index) which returned 0.3%. Developed markets (excluding Australia) returned -2.8% on a currency-hedged basis (and -5.5% in Australian dollar terms, reflecting the rise in the value of the Australian dollar). The worst performing of the major foreign markets was Europe’s (EURO STOXX 50 Index) returning -5.9%. 

The Australian stock market (S&P/ASX 200 Index) generated a return of 2.1% during February, with 7 out of 11 sectors contributing positive returns. Energy and Consumer Staples were the standout performers, returning 5.8% and 5.6% respectively. Information Technology and Consumer Discretionary were the worst performing sectors returning -6.9% and -5.8% respectively.

From a foreign developed market perspective, only 2 out of 11 sectors produced a positive return. Energy and Materials were the positive performers returning 4.9%, and 1.5% respectively. Communication Services, Information Technology and Consumer Discretionary were the lowest performing sectors returning -5.4%, -4.7% and -4.5% respectively.

Bonds

The Australian government bond yield curve marginally steepened in February. The two-year yield increased by 0.22 percentage points and the ten-year yield increased by 0.24 percentage points. This resulted in negative Australian fixed interest returns for the month of -1.2% (Bloomberg AusBond Composite Index). The cash rate set by the RBA remained unchanged at 0.1% in February.

Major developed global government bond yield curves were mixed over the month of February. Notably the United States’ ten-year government bond yield closed above 2% during the month in February before retreating to finish the month at 1.83%. The European Central Bank bond yields increased the most over the ten-year term, by 0.12%, while the United States’ government bond yields increased the most over the two-year term, by 0.25%. 

Currencies 

The Australian Dollar appreciated against all major foreign currencies in February. The Australian Dollar increased in value against the European Euro, United States Dollar, and the Japanese Yen by 2.9%, 2.8% and 2.6% respectively, finishing the month at 0.7263 US Dollars, up 2.0 US cents over the month. 

Commodities 

The price of WTI oil increased 8.6% and the price of Brent crude oil increased 10.7% over the month (with some 3-month futures contracts for oil being above $100 per barrel) as the Russia/Ukraine military conflict stoked supply concerns. The S&P GSCI Commodities index rose by 7.9% for the month of February, with the S&P GSCI Agricultural index rising by 10.0%. Of the precious metals, the price of gold increased 6.2% and the price of silver increased 8.8% in February.  

Performance of key markets over relevant time periods to 28 February 2022

Asset class	Index	Month* (% change)	FYTD* (% change)	1 year* (% change)
Australian Shares	S&P/ASX 200 Acc. Index	2.1%	-0.7%	10.2%
International Shares	MSCI World Ex Aust Unhedged A$	-5.5%	3.0%	18.3%
International Shares	MSCI World Ex Aust Hedged A$	-2.8%	0.2%	12.3%
US Shares	S&P 500 Index	-3.0%	2.7%	16.4%
UK Shares	FTSE 100 Index	0.3%	8.3%	19.2%
Japanese Shares	Nikkei 225 Index	-1.7%	-7.0%	-6.9%
Australian Listed Property	S&P/ASX 200 A-REIT Index	1.4%	5.3%	23.9%
Australian Fixed Interest	Bloomberg AusBond Composite Index	-1.2%	-3.3%	-1.1%
Australian Cash	Bloomberg AusBond Bank Bill Index	0.0%	0.0%	0.0%
Currency	AUD/USD	2.8%	-3.1%	-5.7%

*Percentage changes in returns are for periods over the month of February (Month), the financial year 1 July 2021 to 28 February 2022 (FYTD) and for the year 28 February 2021 to 28 February 2022. Past performance is not an indication of future performance.

[1] https://nypost.com/2022/02/25/ukraine-men-ordered-to-stay-and-fight-russia-as-others-flee/
[2] https://www.ft.com/content/1a9e01b1-03b0-428b-84d1-d8b9be334942
[3] https://www.ft.com/content/e12976cf-59be-414e-b90f-56875df79753
[4] https://www.cnbc.com/2022/02/03/ecb-rate-decision-february-2022-inflation-.html
[5] https://www.worldometers.info/coronavirus/
[6] https://ourworldindata.org/covid-vaccinations/
[7] https://covid19.homeaffairs.gov.au/

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