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Goodbye 2022: a horrible year for investments 

2022 has been a year that most investors would rather forget. And here’s what has driven these outcomes. 

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22 December 2022

Goodbye 2022: a horrible year for investments 

2022 has been a year that most investors would rather forget. And here’s what has driven these outcomes. 

This year has been nothing like most investors expected, with the war in Ukraine, property crises in China, and of course, rising interest rates to tame the never-ending inflation leaving nowhere to hide.  

Just looking at the numbers, interest rates started 2022 at 0% across much of the world and are expected to finish the year 3-4% higher – the fastest tightening of monetary conditions on record. This unprecedented ‘normalisation’ of interest rates to address inflation has inevitably caused chaos across the market, and all asset classes delivered negative returns in the year.  

Here’s the markets’ performance in a snapshot.   

Returns sourced from Factset up to 6 December 2022. The market index return reflects no deductions for fees and tax. Past performance does not equal future performance.   

So, what has driven these outcomes? Let’s go through the key factors, line by line.  

The inflation problem 

When inflation started to rear its ugly head, in December 2021, no one thought that it might end up being such a large problem. Initially, economists and central bankers were of the view that inflation would be a short-term ‘temporary’ issue caused by supply chain disruptions and Government stimulus.   

Unfortunately though, as the year progressed, the story has become a whole lot more complicated. With persistently low unemployment and commodity prices spiking following Russia’s invasion of Ukraine, the only way was up for consumer prices.  

At Kōura, we think inflation is largely driven by labour-market tightness. The global economy has been built on the back of cheap labour for the past 40 years, but this is no longer the case now. Falling workforce participation rates (fewer people wanting to work) and de-globalisation (production moving away from China) are likely to see us go through an extended period of inflation that might be hard to tame and get under control. 


Source: Factset 


The end of the ‘Free Money’ era 

Up until this year, the thinking had been that the world could not handle higher interest rates, and following on from the Japanese example, many people believed that ultra-low interest rates would be with us forever. Then high inflation happened. And the only way to fight it is to lift interest rates, to suck demand out of the economy. 

The Reserve Bank of New Zealand (RBNZ) led the way with the first interest rate hike in October 2021, though other markets have not been too far behind. For example, Europe lifted its benchmark rate above 0% in August 2022 for the first time since December 2015. 

Overall, this year has seen the fastest lift in interest rates of all time, and central banks still have further to go. In New Zealand and the US, the official rates are 4-4.25%, though most expect the central banks to keep lifting rates well above 5.5%. Reserve Bank’s governor Adrian Orr has even been bold enough to openly state he is trying to throw the economy into recession to tame inflation. And in the meantime, mortgage rates in New Zealand are expected to hit 7% by mid-2023.  

What does it all mean for markets? Essentially, the end of the ‘Free Money’ era has meant a rapid repricing of risk assets. Investors now have an alternative to investing in equities or speculative assets and have been pulling money rapidly out of anything highly valued or speculative (which is why the tech-orientated Nasdaq has pulled back so much further than other markets).   

Unfortunately, anything that went up during the ‘Free Money’ period is now coming down. Housing for example is already falling in most global markets, including New Zealand where property prices have fallen 15% so far and further drops are expected over the coming months. 

Source: FactSet  


Russia’s invasion of Ukraine 

Russia’s invasion of Ukraine in March threw the world’s commodity markets into chaos. Not only Russia is a significant exporter of all energy (oil, gas and coal), but it’s also the world’s largest wheat exporter and fertiliser producer. So, the swift imposition of sanctions by most of the world managed to throw both food and energy markets into a tailspin. 

On the energy side, oil prices immediately spiked. It started the year at $77 per barrel and, by mid-March, it had almost doubled to $133 due to concerns on supply. Oil prices have subsequently fallen back to their original $77, as commodity investors have now realised that Russian supply has simply been diverted from Europe to Asia, and that the prospect of a global recession is likely to lead to significantly reduced demand. 

The gas side has caused a much bigger problem, though. Prior to the invasion, almost 30% of Europe’s energy supply came from Russia, with most of it being supplied as piped gas through the Nord Stream gas pipelines. Vladimir Putin is trying to press this fact by shutting off the gas supply into Europe, with the hope of causing electricity blackouts. His view is that a cold and dark winter will quickly change European citizen’s minds about the importance of supporting Ukraine in this ongoing war. 

So far, energy supplies in Europe have held up extremely well and it looks as though the much-forecast energy crisis will be avoided this winter. However, that doesn’t mean all is well: electricity prices have skyrocketed (in line with natural gas prices) and Governments are spending billions subsidising electricity for consumers and industry. On top of it, European Governments did not start with the strongest balance sheets: the question now is whether they can afford to keep subsidising energy if this crisis continues.  


The uncertainty around China 

China started the year as an unknown quantity. 2022 was a bad year for the Red Dragon, with both the tech and property sectors well and truly beaten down, an ineffective vaccine programme, and no path out of Covid signalled.  

Markets weren’t sure which way the dice would fall, between an increasingly assertive Government and a Government that wanted to usher in a new golden age with the appointment of President Xi Jing Ping for an unprecedented 3rd term. 

Unfortunately, things have gone from bad to worse. The housing market has continued to fall, the country is only now emerging from the zero-Covid policies, and there does not appear to be any rapprochement between the Government and the tech moguls (in fact, Alibaba’s founder Jack Ma has decamped to live quietly in Japan).   

All of this has meant that China’s economic growth for the year is expected to be a paltry 3%. The Government had been hoping for a 6% growth target and the only time it had previously fallen below the 6% target was in 2020, with the onset of Covid. Recent moves by the Government have started to see easing on the zero-Covid strategy and reprieves for the property sector, though it will be interesting to see whether the damage has already been done.   


The Antarctic winter arrived in the Crypto world 

Cryptocurrencies have had a tough year, with the bellwether Bitcoin down almost 65% and smaller coins down significantly further.  

The asset class was a massive beneficiary of the ‘Free Money’ era: asset prices skyrocketed as interest rates fell to zero and, more recently, investors ploughed their hard-earned stimulus checks or lockdown dividends straight into cryptocurrencies all around the world. 

But we now see that the financial ecosystem that was built on top of the core cryptocurrency platforms was a bit of a house of cards. As crypto prices fell rapidly in the first four months of the year, we saw several companies capsize. All companies had a few common problems, far too much leverage and promises to investors that were only deliverable if asset prices continued to rise. It’s truly amazing to think this ecosystem was built on top of an asset class that has been highly volatile and has shown a track record of going through significant retrenchments every two or three years. 

It's not clear what 2023 brings, but crypto is definitely in the dog box for most investors at this point in time. 


Source:, returns in the year to 14 December 2022. The market index return reflects no deductions for fees and tax. Past performance does not equal future performance.   


With you in 2023 and beyond 

We don’t know what the new year will bring, but it’s likely that many of these challenges will continue for the foreseeable future. That’s why diversification is so important right now – click here to learn more and use our digital advice tool to check the recommended portfolio composition for your risk profile, needs and goals.  


Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.