March 2023 Market Insights
Developed markets generally rallied despite investor concerns about the global banking sector after the collapse of a few regional U.S. banks and the turmoil around Credit Suisse.
Written by Kevin Hua Co-founder & Chief Investment Officer
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What happened to the markets in March?
Developed markets generally rallied despite investor concerns about the global banking sector after the collapse of a few regional U.S. banks and the turmoil around Credit Suisse. Although Switzerland’s central bank and financial regulator said Credit Suisse would receive a liquidity backstop, it ultimately resulted in rival, UBS agreeing to buy Credit Suisse for 3 billion francs (US$3.3 billion) in a government-brokered deal aimed at calming a crisis of confidence in the global banking sector. The acquisition includes extensive government guarantees and liquidity provisions.
Positive performers were led by the U.S. NASDAQ Index, up +6.69% and Hong Kong’s HSCEI Index, up +5.89% (local prices). Weakness came from U.S. Russell 2000 Index, down -4.98% and the U.K. FTSE 250 Index, down -4.90% (local prices).
Some minor weakness of the AUD by +0.65% against the USD and +3.18% against the € helped AUD returns for the Trends and indices.
Rate hikes continue in the U.S.
The U.S. Federal Reserve said that interest rates will need to increase further and stay elevated into next year to reduce inflation. Rates may reach as high as 6.0% and stay at such levels into 2024 despite the risk of sending the U.S. economy into recession.
Some investors were hoping for a pause in rate hikes during the month as worries over the banking sector reverberated across markets. A co-ordinate response in liquidity by the U.S. Federal Reserve along with five other central banks proved to bring back confidence in the sector and allowed the U.S. Federal Reserve to raise interest rates at a ninth consecutive meeting by 0.25% to a range of 4.75% to 5.0%.
Inflation steadies but rates continue rising in Europe
European inflation slowed to 6.9% in March, a drop from 8.5% in February. However, core inflation (minus energy and food) increased from 5.6% to 5.7%. The European Central Bank raised rates by another 0.50% and suggested more interest rate hikes are likely to be necessary, albeit at a slower pace.
China’s economy recovering
China’s economy showed signs of recovery after Covid restrictions were lifted, as manufacturing bounced back, services activity climbed and the housing market stabilised. Nevertheless, China set a modest economic growth target of around 5% for the year.
President Xi Jinping also unveiled an overhaul of China’s bureaucracy, part of reforms to make the economy more self-sufficient in the face of U.S. efforts to prevent China from obtaining advanced technology. The plan includes strengthening regulation of its financial system, creating a new agency to manage data and restructuring the Ministry of Science and Technology.
China also handed President Xi Jinping a third term, discarding away the collective leadership approach that China has used since the late 1970s.