#MarketingCommunication

December brought a disappointing end to a tumultuous year. The carnage on stock markets was ubiquitous as investors had no places to hide – no asset class provided safe haven in a very rare year, in which bonds fell along with equities., Global stocks finished 2022 with a monthly decline of 3.7% and closed the year with a drop of more than 18%, the worst result since 2008. Asian shares were boosted by China’s relaxation of its zero-Covid policy, while American and European equities lost ground. Government bond yields ended up higher at the end of the year (meaning that their prices fell). This reflected the investors’ disappointment at major central banks re-confirming plans to continue with monetary tightening, even as inflation showed signs of subsiding. 
The final month of the year saw negative returns for US equities, as fears that have driven gloomy investor sentiment for most of 2022 continued to dominate through December: rampant inflation, rising interest rates, war in Ukraine, and slowing corporate profits. The US dollar continued its recent weakness exacerbating the monthly loss for US investors. Thus, after posting gains in the previous three years, the major American stock indices ended the year with their worst annual performance since the 2008 financial crisis. The broad S&P500 index fell nearly 20% in 2022, and the tech-heavy NASDAQ lost a third of its value with a 33% drop for the year. The Dow Jones blue-chip index finished about 9% lower. At the sector level, there were huge differences in stock performance over the year. Energy was the best performing sector in the S&P500 with a total return of over 65%, followed by utilities (2%) and consumer staples (-1%). The weakest performance came from telecoms, where the decline was 40%, followed by consumer discretionary (-37%) and information technology (-28%). Inflation showed signs of abating in December but (at 7,1% year-over-year) remained well above central bank target causing the US Federal Reserve (Fed) to maintain its hawkish stance. The policy rate is expected to continue to climb in 2023, adding to the general uncertainty over the duration and severity of the economic slowdown that started in 2022. The year was particularly tough for bond investors; the U.S. investment-grade fixed-income benchmark, the Bloomberg U.S. Aggregate Bond Index, finished down 13%! The US 10-year government bond yield ended at 3.88%, and the 2-year – at 4.42%. The inverted yield curve, weak consumer spending, and weak manufacturing orders all point to a continued recession in 2023, with the bond market anticipating that the Fed will soften its tone. Indeed, The Fed’s final rate hike of the year was a 50 basis points (bps) rise after four consecutive 75 bps tightening moves, ending the year with the Fed fund rate at 4.5%.
The eurozone faced its most challenging year for inflation in its history, though signs emerged that it may have peaked in October, helped by falling energy prices, amid unusually mild winter weather so far. Nevertheless, the European Central Bank (ECB) continued to tighten monetary policy conditions – rates went up by 50 bps in December, a slower pace than the previous 75 bps hikes – maintaining its hawkish message and indicating future rate hikes. While the eurozone remains in a recession, optimism that the recession will not be as deep as initially feared surfaced in December. Thus, Eurozone shares chalked up a strong increase in the last quarter of the year, outperforming other regions. Gains came from several sectors, notably energy, financials, and consumer discretionary. More defensive parts of the market such as consumer staples lagged the wider market’s advance.
In the last month of the year, the Bulgarian Stock Exchange once again showed its stabilizing function in a globally diversified portfolio. In contrast to the large monthly declines in developed markets, the Bulgarian indices ended close to zero. Among local companies, the best performer was the commercial bank First Investment Bank Plc, whose share price rose more than 13% over the last month, and the worst performer was the real estate investment company FairPlay Properties REIT, whose share price fell almost 22%. The results for the year also demonstrate the resilience of the domestic financial market - all Bulgarian indices ended the year either in positive territory (BG REIT +12%!) or with single-digit losses (SOFIX down 5.4% and the broad BG40 down 3%). Despite the lack of significant declines, Bulgarian equities look historically cheap, with SOFIX trading on a price-to-earnings (P/E) ratio of 5.4, nearly 50% lower than its average over the past five years, and significantly cheaper than developed markets.