Summary: The situation in Ukraine continues to dominate our equity baskets’ performance, as commodities and defence tops the list for 2022.
2022 has been a challenging year. That rings especially true for the financial markets, where hefty inflation, climbing interest rates, supply chain squeezes, COVID lockdowns and not least uncertainty from the Ukraine crisis make investors scratch their heads.
Our collection of relevant investment themes, referred to as our equity baskets, put together by our Head of equity strategy, Peter Garnry are examples of this. Only two baskets post double-digit returns in 2022 and the travel basket is in a slight plus. “It’s been a tough year so far for equity markets. With everything that’s been thrown at investors it’s almost impressive that markets haven’t fallen further,” says Garnry.
The two outperforming baskets are commodities and defence. While a lot is going on financially, the strong performances are effects of the crisis in Ukraine. “The terrible situation in Ukraine has catapulted defence stocks into relevancy as countries like Germany will rapidly increase military spending in the coming years” says Garnry and adds that “the Ukraine crisis has extended the bull-run in commodities dominated by oil and gas as the European Union aims to become independent of Russian energy. The unfortunate rising risk of a global food crisis means that food commodities have also increased in price recently.”
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Among the top performers in the commodity basket is the American mining company The Mosaic Company and the American Big Four oil company Exxon Mobil. Within defence, the German arms manufacturer Rheinmetall AG leads the flock. The French producer of electrical defence systems, Thales, French Dassault Aviation and the Swedish defence company and former car producer, Saab, have also performed well.
|Saxo equity themes performance overview
|2022 performance (%)
|Women in leadership
|China consumer & technology
|Crypto & blockchain
|China's little giants
|Data from 22. April 2022
Source: Bloomberg and Saxo
Will the future hold more of the same?
Garnry believes that the Ukraine conflict will continue to play a role in basket performance. “With everything going on in the world, and especially in Ukraine, commodities as an asset class is primed to continue to be enormously important for investors amid the new inflation regime. The same goes for defence stocks,” he says.
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The conflict means the cyber security basket could move up in rank. “What we have seen is that online presence plays a significant role in conflicts these days. Therefore there’s reasons to think that people, companies and countries alike will strengthen their online security in the coming months and years,” Garnry says.
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Broadly speaking, the near future looks challenging for equities. “Even though we’ve seen some pretty strong sales figures in the early part of this earnings season, the current financial environment with high inflation and interest rate increases is difficult for stocks. As I wrote about a month ago, we could be looking at a serious repricing of stocks, where the main asset that stands to gain is commodities – even if the situation in Ukraine hopefully gets solved. So, if that isn’t part of your investment strategy yet, maybe it’s time to start considering it,” Garnry says.