The value of the Australian Dollar decreased against major foreign currencies, increasing 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 escalation of tensions between Russia and Ukraine has become the biggest geopolitical development in January. Russia has positioned over 100,000 troops and medical personnel on the eastern Ukrainian border in an offensive military display. Among other demands to NATO, Russia initially demanded that Ukraine should be barred from becoming a member of NATO. As the organisation’s membership has increased since the late 1990s and now includes more Eastern European countries, NATO has moved closer to Russia’s border and is moving to reinforce its Eastern flank. There are significant energy price consequences that may develop as a result of the crisis. Nord Stream 2, a natural gas pipeline from Russia to the European Union, is being used as leverage and Joe Biden has warned Putin of “sanctions like he’s never seen” if troops should invade [1]. However, the US President has been much slower to commit military aid. The overwhelming consensus is that whatever develops, a World War will not eventuate from this conflict.

A combination of factors led to highly volatile equity markets in January, particularly in the United States. Geopolitical tensions are high in multiple areas, inflation is accelerating in many parts of the globe, the Omicron variant is spreading at a rapid rate, and the US Federal Reserve has signaled a more hawkish stance (i.e. more prepared to raise interest rates) going forward. Equity market movements in January included three of the biggest intraday swings in a decade just in the space of one week. Among these, the S&P 500 experienced its second largest intraday point swing in history (an intraday range of 4.2% occurred) and the Dow Jones Industrial Average Index experienced its largest ever intraday loss that turned positive by market close (falling 2.7% before increasing by 3.7%) on 24 January. Heightened volatility in financial markets is expected to remain elevated for some time [2].

COVID-19 

Reported global coronavirus case numbers exceeded 380 million at the end of January 2022 (an increase of 88 million in one month), with cumulative global fatalities exceeding 5.7 million at the end of the month [3]. Reported global daily new cases of infection grew exponentially throughout the month as the Omicron variant swept across the globe to reach a peak of daily new cases of almost 3.8 million. Nine of the top 10 countries (by total reported cases of infection) saw a new peak in daily cases: United States, Brazil, France, United Kingdom, Russia, Turkey, Italy, Germany and Spain, with India being the only exception that still saw a dramatic increase in reported cases in January.

The global vaccine rollout continued throughout January with 61% of the world’s population having received at least one dose by the end of the month. 10.1 billion doses have now been administered worldwide [4]. As at the end of the month more than 95% of Australians had received at least one vaccine dose, approximately 93% are fully vaccinated (having received more than one dose), and 7.8 million have received a booster in addition to the original two doses [5]. 

The Omicron variant asserted itself as the dominant strain worldwide in January. There are few places left tolerating a zero-COVID-19 policy, notably China and Western Australia (WA). China will be hosting the Winter Olympics in February and Western Australia was set to open its borders on 5 February 2022. However, on 21 January, WA premier, Mark McGowan, deferred the border opening date stating “unfortunately, the world changed in December. Omicron arrived” and “Omicron is a whole new ball game.” The goal of a 90 percent fully vaccinated rate has been exceeded by WA, however, no target date has been set for when borders might open and it's unclear when such a date might be set [6].

Equities

All major foreign equity markets produced negative returns in the month of January, with the exception of the United Kingdom’s (FTSE 100 Index) which returned 1.1%. Developed markets (excluding Australia) returned -5.1% on a currency-hedged basis (and -2.2% in Australian dollar terms, reflecting the fall in the value of the Australian dollar). The worst performing of the major foreign markets was Japan’s (Nikkei 225 Index) returning -6.2%. 

The Australian stock market (S&P/ASX 200 Index) generated a return of -6.4% during January, with 3 out of 11 sectors contributing positive returns. Energy, Utilities and Materials were the standout performers, returning 7.9%, 2.6% and 0.8% respectively. Information Technology and Health Care were the worst performing sectors returning -18.4% and -12.1% respectively.

From a foreign developed market perspective, only 2 out of 11 sectors produced a positive return. Energy and Financials the standout performers returning 16.0%, and 1.2% respectively. Information Technology and Consumer Discretionary were the lowest performing sectors returning -8.4% and -8.1% respectively.

Bonds

The Australian government bond yield curve marginally flattened in January. The two-year yield increased by 0.29 percentage points and the ten-year yield increased by 0.23 percentage points. This resulted in negative Australian fixed interest returns for the month of -1.0% (Bloomberg AusBond Composite Index). The cash rate set by the RBA remained unchanged at 0.1% in January.

Major developed global government bond yield curves all shifted upwards (indicating higher inflation expectations) to varying degrees over the month of January. The United States’ government bond yields increased the most over the two-year term, by 0.45%, while the United Kingdom’s government bond yields increased the most over the ten-year term, by 0.33%. 

Currencies 

The Australian Dollar depreciated against all major foreign currencies in January. The Australian Dollar decreased in value against the Japanese Yen, United States Dollar, and the Chinese Renminbi by -2.8%, -2.7% and -2.5% respectively, finishing the month at 0.7067 US Dollars, down 2.0 US cents over the month.

Commodities 

The price of WTI oil increased 17.2% and the price of Brent crude oil increased 17% over the month as demand outpaced supply growth. The S&P GSCI Commodities index rose by 11.2% for the month of January. The standout performer was natural gas which rose 30.7% in January. Of the precious metals, the price of gold decreased 1.8% and the price of silver decreased 3.6% in January. 

Performance of key markets over relevant time periods to 31 January 2022

Asset class	Index	Month* (% change)	FYTD* (% change)	1 year* (% change)
Australian Shares	S&P/ASX 200 Acc. Index	-6.4%	-2.8%	9.4%
International Shares	MSCI World Ex Aust Unhedged A$	-2.2%	9.0%	27.3%
International Shares	MSCI World Ex Aust Hedged A$	-5.1%	3.0%	18.6%
US Shares	S&P 500 Index	-5.2%	5.9%	23.3%
UK Shares	FTSE 100 Index	1.1%	8.0%	20.7%
Japanese Shares	Nikkei 225 Index	-6.2%	-5.4%	-0.8%
Australian Listed Property	S&P/ASX 200 A-REIT Index	-9.5%	3.8%	19.0%
Australian Fixed Interest	Bloomberg AusBond Composite Index	-1.0%	-2.2%	-3.5%
Australian Cash	Bloomberg AusBond Bank Bill Index	0.0%	0.0%	0.0%
Currency	AUD/USD	-2.7%	-5.7%	-7.5%

*Percentage changes in returns are for periods over the month of January (Month), the financial year 1 July 2021 to 31 January 2022 (FYTD) and for the year 31 January 2021 to 31 January 2022. Past performance is not an indication of future performance.

[1] https://www.rt.com/russia/546573-biden-russia-ukraine-sanctions-incursion/
[2] https://www.cnbc.com/2022/01/28/big-swings-in-the-market-are-more-normal-than-investors-might-expect.html
[3] https://www.worldometers.info/coronavirus/
[4] https://ourworldindata.org/covid-vaccinations/
[5] https://www.health.gov.au/sites/default/files/documents/2022/01/covid-19-vaccine-rollout-update-31-january-2022.pdf
[6] https://www.abc.net.au/news/2022-01-21/wa-border-opening-delayed-what-happens-now-explainer/100772052

Any general advice on this website has been prepared without taking into account your objectives, financial situation or needs. Before you act on any general advice on this website, you should consider whether it is appropriate to your individual circumstances. Before making any investment decision, you should obtain and read the relevant product disclosure statement which is available on the Website or by calling 1300 033 166 between 8.30 am and 5.30 pm (AEST) Monday to Friday. You may wish to consult an Adviser before you make any decisions relating to your financial affairs. To speak with an Adviser from TelstraSuper Financial Planning call 1300 033 166.