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12 Jan 2023

The Year in Review

Calendar year 2022 started with a tone of cautious optimism. However, all too swiftly markets succumbed to a new threat: rising global inflation. Investment professional LINDA EEDES describes how the inflation theme came to dominate global markets, leading to the worst year for global stocks and bonds combined in 150 years.

The world’s emergence from COVID-19 isolation is what lit the global inflation fire: pent-up savings and stimulus cheques chased too few goods and services amid stretched global supply chains. Russia’s invasion of Ukraine in late February fuelled the flames — further disrupting global supply chains and pushing oil prices to more than $110 a barrel in March 2022.

This final price spike forced the US Federal Reserve to abandon its view that global inflation would be transitory. This kicked off the fastest paced, most aggressive US rate tightening cycle in four decades. The Fed’s rate hikes reverberated around the world. Most other central banks rapidly followed suit in an increasingly tricky balancing act of fighting inflation with already slowing growth.

The US dollar strengthened against most currencies, buoyed by the Fed’s aggressiveness and its safe-haven status. Chinese economic activity slowed, exacerbated by frustratingly rigid lockdowns for the better part of 2022. Recession risks for 2023 were on the rise and most commodities sold off.

The rapid rise in rates weighed heavily on developed world stock and bond markets. Both sustained severe double-digit losses. With no diversification benefits between these asset classes, it was the worst year for the traditional 60:40 stock and bond portfolio in 150 years.

The expensive US equity markets fell most amongst developed economies. Long-duration assets — the hottest themes of 2020 and 2021 — fared worst in the market rout. These include US tech names and cryptocurrency, which fell from bubble levels as the opportunity costs rose with sharply higher interest rates. Emerging markets were also lower, dragged down by Chinese equities (see China — Turning a Corner?). The much less expensive South African share and bond markets were marginally positive but fell by low single-digit percentages when measured in US dollars.

True to Foord’s safety-first approach, the Foord funds were resilient. The flagship Foord International Fund delivered a small, positive return in US dollars when the worst peer-group fund fell by more than a third. This is a phenomenal achievement. In South Africa, the Foord unit trust funds all delivered at least positive returns. The multi-asset funds (Foord Conservative, Balanced and Flexible Funds) were ranked comfortably within the top 25% of their peer groups, despite having a good amount of risk assets to deal with the coming inflation threat. The equity strategies (Foord Equity, Global Equity and Asia ex-Japan Funds) were all ahead of benchmark for the year in a stock-pickers environment.

Looking ahead, we’re now seeing the unintended consequences of 10-plus years of easy money. Artificially low interest rates incentivised investors to take undue risks and reach for yield. Governments were also free to run up national debts, which have suddenly become expensive as interest rates spiked. Capital flowed to unproductive sectors and weak or failing companies were propped up. Housing in countries such as the US, Canada and Australia rose to unaffordable levels. Central banks ballooned their balance sheets and pockets of leverage were created.

Despite the market drawdowns, most of this is yet to unwind. This will be a headwind to financial markets in the years ahead — it is therefore premature to assume that the worst is over. We expect that 2023 will be an even tougher year for consumers here and abroad: either interest rates will remain high due to sticky inflation, or they will fall if we enter a global recession.

Global bond yields are still too low for bonds to prove as defensive as they have been in previous cycles. Geographically, there is opportunity within equities, but the biggest opportunity remains stock selection. Given the significant valuation dispersion within equities, we expect big winners and losers to emerge as companies differentiate themselves in the challenging operating environment.

While asset allocation plays a vital role in protecting and growing investors’ wealth, we envisage that stock selection will be paramount in 2023. The bigger call will therefore be less about asset allocation and rather about which securities you own — and, much more importantly, which you avoid. We think we have these risks well managed.


08 Mar 2023


In early February, the US Federal Reserve announced its eighth interest rate hike this cycle. The smaller 25bps increase takes the federal funds rate to 4.75%. With headline inflation slowing, investors were quick…

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03 Mar 2023


‘Markets in a nutshell’ is Foord Asset Management’s monthly overview of market movements.

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