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  • Jonathan Wilmot

War Like Wealth Destruction


World Wealth fell by 14.3% in 2022, slightly less than developed equities and slightly more than developed bonds. The maximum drawdown in World Wealth from the November 2021 peak was reached in early October. At just less than 20% it qualifies as a Mama Bear in our terminology - see figure 1. US equities returned minus 18.3% on the calendar year but real returns were minus 23% and maximum drawdown exceeded 20% on several occasions. By most definitions that is a bear market though the majority of the decline in global equities reflected multiple compression rather than downgrades to forward earnings, which is not typical for bear markets. By sector the top performers within the US equity market were energy (65%), Utilities (3%) and Staples (-2%), the bottom three performers Technology (-28.5%), Discretionary (-37%) and Communication services (-40.6%). Industrials and Financials posted relatively modest declines. Meanwhile, Emerging Equities outperformed, down just 8% (in US Dollars) on the year vs -18% for the S&P 500, also unusual for an equity bear market. Within EM, the spread of individual country performance was massive: the top 4 performers were MSCI Turkey (104.6%), Argentina (36.2%), Chile (22.7%) and Brazil (10.7%); the bottom 4 were Sri Lanka (minus 65.3%), Pakistan (minus 36.3%). Taiwan (minus 28.4%) and MSCI China (minus 21.9%). Russian equities disappeared from the international scene, and are no longer included in our World Wealth or Risk Appetite calculations, but in both US dollar and Rouble terms are roughly 50% down from their peak in 2021. Food and energy prices rose sharply, though they are generally way down from their post invasion peak: in Commodity markets WTI crude ended around $80 a barrel, after soaring from $65 to $130 immediately following Russia’s invasion. Industrial metals, by contrast, were generally soft (down less than 10%) and grains prices rose 15-20% in USD, similar to oil. Natural gas in Europe went through much wilder swings, but ended the year just below the pre-invasion price (but still several times higher than the norm). Other than internationally quoted Russian firms the biggest losers were crypto currencies especially the newer and flimsier ones and technology shares, especially the more speculative plays on economic transformation. Bitcoin and Ethereum were down 64% and 68% percent respectively in 2022, while ARKK was down 70% on the year and 80% from its all-time peak in 2021. The Nasdaq was down roughly 33% in 2022 but the Megacap US tech stocks generally did even worse with Tesla and Meta dropping around 65%. In US Dollar terms the Cryptocurrency complex fell from a peak market cap of $2.8 trillion to just $0.8 trillion, while the MegaCap 8 saw their combined market cap shrink by $5 trillion. All in all, the market value of global stocks, bonds and cryptocurrencies fell by a total of $26tn peak to trough, which for context is about 27% of global GDP. The nearest modern parallel to bonds underperforming in a down year for equities is 1994, also a year of aggressive Fed tightening, but on that occasion it was emerging equities that took the strain, not developed equities. But for a more illuminating perspective consider this: In the US, there are just 5 previous episodes over the past 150 years in which high quality bonds have delivered significantly negative returns during an equity bear market: they are all associated with the direct or indirect effects of major wars: the Civil War, World War I, World War II, the Vietnam War and 1970’s Oil Shocks. 2022 was a very war like year of wealth destruction.












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