Equities, cryptos, metals: Most asset classes gave negative return in 2022

These negative returns have largely been triggered by panic selling by new investors who exited in droves in the backdrop of rising interest rates, inflation worries and the geopolitical tensions

The risk-off sentiment has not spared any asset class thus far in 2022 and the pain is not restricted just to equities. Investors across most asset classes – equities, crypto currency (cryptos) and metals, including precious metals such as gold and silver – have seen a negative return on their investment thus far in 2022, shows data.

These negative returns, according to G Chokkalingam, founder and chief investment officer at Equinomics Research, have largely been triggered by panic selling across asset classes by new investors who exited in droves in the backdrop of rising interest rates, inflation worries and the geopolitical situation. That apart, foreign investors, too, evaluated their portfolio strategy amid the global developments, he said.

"New investors, especially millennials, are now a force to reckon with. They sold in panic as macro-economics and geopolitical events took center-stage. Rising oil prices and developments in the bond market also led to some nervousness. These investors want to make a quick buck and are not willing to take much risk. That said, equity markets should stage a recovery in the later part of the year as investors make a comeback and come to terms with the new normal," Chokkalingam said.

While the sell-off in equities has been brutal, especially in the US stock market with NASDAQ and Dow Jones Industrial Average (DJIA) slipping over 27 per cent and 13 per cent year-to-date (YTD), the other regions, too, have seen their frontline indexes topple.

The Indian frontline indices – the S&P BSE Sensex and the Nifty50 – have lost around 9 per cent each YTD. In comparison, their Asian counterparts – Nikkei 225, Taiwan Taiex Index, Kospi, Hang Seng and Shanghai Composite – have lost 11 per cent to 18 per cent during this period, data show. Popular cryptocurrencies Bitcoin and Ethereum, too, are down 37 per cent and 46 per cent YTD.

Bond markets, on the other hand, have seen the India 10 year G-Sec yield rise from 6.01 per cent a year ago to 7.25 per cent now. Inflation (WPI) in India has moved up from 2.26 per cent at the start of 2022 to 14.55 now. Retail inflation, on the other hand, hit an eight-year high of 7.79 per cent in April, driven by rising food and fuel prices.

"We now expect CPI inflation to average 7.2 per cent in FY23. Inflation will be skirting around 7 per cent for most of the year, rising to around 8 per cent levels in August-September, due to a low base. Expect more frontloaded rate hikes: 35 basis points (bps) in June, followed by 50 bps in August and 25 bps at subsequent meetings until April 2023. We expect the repo rate at 5.75 per cent by December 2022 and at 6.25 per cent by April 2023. See a 100 bps in CRR hikes in H2-2023," wrote Sonal Varma, chief economist for India and Asia ex-Japan at Nomura in a recent co-authored note with Aurodeep Nandi.

Inflation in the US, too, remains sticky and may prompt the US Federal Reserve (US Fed) to hike rates aggressively over the next few months. All this, believe analysts, will keep gains across asset classes in check in the short-to-medium term.

"High inflation in the US and the hawkish Fed has pushed up bond yields, negatively impacting equity markets. Global economic uncertainty and market turbulence have triggered safe haven dollar buying. FPIs continue their selling spree further impacting sentiment. CPI inflation has left no option for the RBI, but to turn hawkish in the coming policy meets. All this bad news is already known and factored-in by the market. Despite intermittent bounce-backs, the overall texture of the market remains weak. For long-term investors, high quality financials and IT provide investment opportunities," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.