• Overview

    For the first six weeks of 2022, banks were the best-performing sector in Europe. In recent weeks, they’ve been the worst. A year-to-date gain of as much as 16% in the Stoxx Banks Index has become a drop of 14% as optimism over the benefits of rising bond yields has been displaced by concern over the impact of war in Ukraine and what that may mean for monetary policy normalization and rate hikes. The decline has been most pronounced for those with the biggest Russian exposure with Austria’s Raiffeisen plunging 54% in that time, and Societe Generale losing 37%. The tailwind provided by yields earlier in the year is fading as traders reprice the odds of central banks raising rates.

    Chart 1: Russian invasion bad for European banks

    Source: Bloomberg


    Meantime, grain markets are jumping, with wheat and corn surging. Ukraine and Russia account for more than a quarter of the global trade in wheat, about a fifth of corn sales and 80% of sunflower oil exports. Drought in South America is also dimming the outlook for soybean supplies, while palm oil is rising amid a labour shortage in Malaysia.

    Fertilizer shortages loom too, as Russia is a low-cost, high-volume global producer, and it’s the world’s second-largest potash producer after Canada. And of course oil is skyrocketing.

    Chart 2: Higher commodity prices should support emerging markets

    Source: Bloomberg


    Investor angst has been high for months about China’s tech, property and education sectors, which have been mired in regulatory crackdowns. The latest on new regulations is that China will ask car-hailing apps to set limits on commissions. This comes after the news that top state economic planners have demanded Meituan and its peers to lower the fees they charge restaurants in pandemic-hit regions.

    Adding to the unease are tensions with the US where the SEC is expanding its list of issuers under the Holding Foreign Companies Accountable Act, potentially making Chinese companies delisting from U.S. exchanges.

    Chart 3: Chinese equities struggling (CSI 300 index)

    Source: Bloomberg

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