Most popular asset classes witnessed massive declines during the first half of 2022 (H1CY22) on the back of aggressive monetary tightening in a bid to control the rising inflation.
While crude oil surged the most due to the ongoing Russia-Ukraine war, riskier assets like cryptocurrency cracked the most as investors fled to safer asset classes like gold, real estate, largecap stocks, etc.
Most experts believe that the second half of CY22 (H2-CY22) is also likely to remain volatile due to rising interest rates, high inflation and global growth concerns.
"Rising interest rates are posing a massive threat to global GDP growth and trade. Talk of the USA & Europe going into recession is gaining pace, which explains the massive drawdown in their respective equity markets. The drastic shift in monetary policy will have far-reaching implications on different asset classes, including equities. It is going to be a difficult battle for the central banks to balance growth and inflation," Aishvarya Dadheech, Fund Manager, Ambit Asset Management said.
Let's take a look at how various asset classes performed in the first half of CY22:
Crude Oil: This was the best-performing asset class with the price of Brent Crude surging around 50 percent, its best performance since the first half of 2009 as the geopolitical crisis between Russia and Ukraine disrupted the oil space. Meanwhile, WTI Crude advanced over 40 percent in this period
Dollar: US dollar also gained over 6 percent against the rupee in the first half of 2022. Meanwhile, the greenback advanced 7 percent against the euro since the start of the year, its best first-half performance since 2015. Against the Yen, the US dollar rallied over 17 percent in this period. The rise in the dollar comes as most investors shifted their investment from other currencies to the dollar considering it a safe haven investment amid the ongoing volatility globally.
Real Estate: Realty prices also rose in the first half of CY22 as developers raised prices to counter the rising commodity prices. Moreover, with the markets in correction mode, investors moved their investments to real estate as it is considered more stable leading to a recovery in demand after a massive fall during the pandemic.
Gold: Despite the volatility, the precious metal did not witness any gains in the first half of 2022. Gold prices declined 1 percent in this period, however, it performed much better than equity and other metals. However, its performance is better than the previous year (2021), when the yellow metal lost around 7 percent in the first half after equity markets surged post the massive pandemic decline. While in 2020, during the pandemic, Gold surged over 17 percent in the first half.
Bonds: The 10-year G-Sec bonds also posted negative returns in H1CY22, down 6 percent as bond yields rose due to rising inflation and a weakening rupee.
Benchmark indices (largecaps): The benchmark indices in India performed better than most of their counterparts across the globe, even though they declined around 9 percent in the first half of 2022. The MSCI World index lost 20 percent during this time whereas the S&P500 lost 19 percent in this time. MSCI EM index also shed 16 percent while Japan's Nikkei declined over 20 percent in H1CY22.
Broader Markets: Broader markets underperformed benchmarks in H1CY22 with the midcap index down 3 percent while smallcap index lost 25 percent in this period as investors stayed away from risky assets. However, during the same period last year (H1CY21), the broader markets performed robustly leaving the largecaps behind. In H1CY21, the midcap and smallcap indices rose 29 percent and 37 percent, respectively as against a 10 percent rise in benchmarks.
Cryptocurrency: Bitcoin fell around 60 percent in H1CY22, recording its worst first-half ever, after its historic rise in the past few years. It rose 19 percent in the first half of 2021 and around 30 percent in the first half of 2020. The last time the cryptocurrency witnessed a decline was the first half of 2018 when it lost 54 percent.
