Global equity markets were weaker in December. In the US, the S&P 500 fell -5.9%, the Nasdaq declined -8.7%, whilst the FTSE 100 (UK) outperformed (given its lower tech and growth exposure), falling just -1.6%. The driver of the declines was persistent inflation and hawkish commentary from central banks, which disappointed investors hoping for an end to the interest rate rises that have been the key headwind for equities in 2022. The ASX All Ordinaries accumulation index fell -3.3% in December. Whilst all sectors produced negative returns, mining was again the best performer boosted by expectations that the re-opening of China's economy will lift demand for commodities. Consumer discretionary, IT and REIT's all underperformed. In bond markets, the key US 10-year bond rate rose +10 basis points to close at 3.83%, whilst in Australia, the 10-year bond rate rose more materially, up +52bp to close at 4.05%. The

A$/US$ was flat at US$0.68. 

Review of global stock market indices in 2022 

The table below shows how some of the relevant equity indices performed in 2022.

Some of the key takeaways:  

• Growth stocks, in particular technology stocks, underperformed materially given the sharp rise in bond yields and (for many stocks at the start of 2022) over valuation following several years of very strong stock price performance  

• Indices with a heavy weighting to resources (eg. ASX and FTSE) outperformed 

• Small caps significantly underperformed large caps on the ASX, as investor sentiment became very bearish, investor funds flowed into the perceived safety of large caps 

Looking forward to 2023, our view is that having underperformed materially in 2022, small/mid cap stocks on the ASX in particular, are poised to provide some excellent opportunities given historically this part of the ASX has been a very profitable segment, due to small/mid-caps typically having superior earnings growth prospects vs large caps. In terms of the growth and technology sectors, we believe that whilst much of the sell off of highly priced stocks has likely played out, given our preference for established business generating profits and cashflow, we remain cautious on this part of the market.