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May market commentary



May 2022

VIDEO: 

Our Head of Investment Management, Aaron Klee, brings you a quick roundup of what’s been happening in investment markets around the world.

In summary…


• A strong rally in the final week of May saw many sharemarkets post positive returns for the month. 
• The fight against inflation, which sits at levels we haven’t seen for decades, continued as central banks raised interest rates, which in turn saw an increase in mortgage rates to customers.
• The global economy and electric vehicle sales may receive a boost as China emerges from its zero-Covid policy lockdown.


What happened in markets during May?


Sharemarkets rallied strongly in the final week of May, jumping 5% to record one of the best weekly gains this year. It ended a seven-week run of consecutive declines. The weekly rise saw many sharemarkets around the world record a positive gain for the month of May. The Chinese sharemarket was a standout performer, rebounding off its April lows to gain 3.1% for the month. It’s too early to call this the bottom, but there was certainly some positive news that came out during the month.

There were positive signs that China is re-emerging from its zero-Covid policy lockdown. Reports suggest Shanghai and Beijing will start to ease lockdowns as Covid-19 cases fall. This will help boost economic growth both in China and globally. Policies have also been announced to stimulate economic activity in China, including subsiding purchases of battery-powered cars. It was also a solid reporting season in the US, with 77% of US companies outperforming their earnings estimates.

It's not all plain sailing however; some sharemarkets, including Australia and NZ, ended in negative territory for May. Volatility will remain a constant theme over the next few months as the fight to lower inflation continues. Around the world central banks either moved rates higher or made it clear that rates will rise very soon. While this impacts negatively on share prices, central banks have no alternative as their focus is to bring inflation under control, which sits at levels not seen for decades. This is flowing through to households as mortgage rates begin to rise.


Outlook


Our outlook remains relatively unchanged from previous commentaries. The market outlook remains clouded; geopolitical turmoil and rising interest rates weigh on investor sentiment while company earnings remain positive. This provides investors an abundance of information to grapple with. It is during times of elevated uncertainty and volatility that investors need to look out further and focus on long-term trends and market cycles (as we’ve said in the past, focus on the hill, not the yo-yo).

Our experiences of the past have taught us that cycles do turn, and markets do recover. Investing is like sailing; a captain needs binoculars to focus on the horizon and the long-term objective rather than getting distracted by short-term choppy conditions.

View archive of earlier market commentaries


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