February 2022 - Equity markets experienced significant volatility during the month. Geopolitical tensions intensified in an already tumultuous market environment, as investors came to grips with persistent inflationary pressures and an impending monetary tightening cycle. Within the MSCI All Country World Index, which covers about 85% of the global equity investment universe, Russia's weighting was only 0.2% at the end of February. Despite this, Russia’s invasion of Ukraine, coupled with major economic sanctions from Western countries, prompted investors to flee risky assets, driving up the prices of safe havens assets such as the U.S. dollar and gold. Russia is one of the world’s largest oil and gas producers, and these prices rose sharply as well. Inflationary dynamics and the prospect of rate hikes by central banks continued to weigh on the bond market for most of February. The situation in Ukraine put higher rates on hold at the end of the month, however, increases are still expected.
|Closing 28-02-2022||Variation vs 31-01-2022||Variation vs 31-12-2021|
|Interest rate in Canada (%)|
|Commodities ($ US)|
|Currencies||CAD Variation||CAD Variation|
|EUR / CAD||0.70||0.2%▲||1.1%▲|
|JPY / CAD||90.66||0.1%▲||0.2%▼|
|USD / CAD||0.79||0.2%▲||0.2%▼|
Sources: Bank of Canada, Fundata, US Energy Information Administration.
Canadian Market 0.1%▼ (MSCI Canada 28-02-22)
Over all, the Canadian market held steady and ended the month with a return of -0.1%, as measured by the MSCI Canada Index. The losses were limited by strong exposure to February’s best-performing sectors, namely Energy and Materials. In the context of a rising interest rates environment, the Information Technology sector experience the largest decline. The bond market also closed the month with a loss due to rate expectations.
American Market 3.2%▼ (MSCI USA 28-02-22 in CAD)
Amid geopolitical tensions and the return of a more restrictive monetary policy, the U.S. market continued to suffer in February, as evidenced by its -2.9% return in local currency according to the MSCI USA Index. Only the Energy sector advanced. Communication Services, Information Technology and Consumer Discretionary were the sectors that declined the most. The loonie’s appreciation against the greenback increased the loss slightly, such that the return was -3.2% for Canadian investors.
European Market 3.1%▼ (MSCI Europe 28-02-22 in CAD)
Uncertainty surrounding the economic outlook and fears of exposure to Russian financial assets weighed heavily on the European market, which returned -3.1% in local currency, as measured by the MSCI Europe Index. The return was also -3.1% in Canadian dollars. The sectors that declined the most were Financials, Consumer Discretionary and Industrials. Only the Energy sector was able to limit the losses.
Asian Market 1.4%▼ (MSCI Asia-Pacific 28-02-22 in CAD)
Asia was least affected by the crisis in Europe. In local currency, the return was -1.3% as measured by the MSCI Asia Pacific Index, while it was -1.4% in Canadian dollars. Here, too, the Energy and Material sectors performed well, along with Consumer Staples and Health Care. In contrast, Consumer Discretionary, Communication Services and Information Technology in particular, pushed the overall return into negative territory.
Emerging Markets 3.2%▼ (MSCI Emerging Markets 28-02-22 in CAD)
Unlike developed markets, the Energy sector in emerging markets was hit hard by the selloff in the Russian stock market investors’ concerns of sanctions against Russia. The only sectors to increase were Materials, Industrials and Consumer staples. The return in local currency was -2.4%, as measured by the MSCI Emerging Markets Index, while it was -3.2% in Canadian dollars. At the end of February, Russia’s weighting in the MSCI Emerging Markets index was 1.5%.
Sources: Bank of Canada and MSCI Inc.
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