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iBoxx USD Asia Ex-Japan Monthly Commentary: June 2022

S&P Latin America Equity Indices Quantitative Analysis Q2 2022

iBoxx ALBI Monthly Commentary: June 2022

U.S. Equities Market Attributes June 2022

ETF Transactions by U.S. Insurers in Q1 2022

iBoxx USD Asia Ex-Japan Monthly Commentary: June 2022

June 2022 Commentary

Economic headwinds from high inflation and the impact of monetary contraction policies continued to pressure financial markets in June. In the U.S., investor sentiment shifted after the Federal Reserve delivered a rate hike of 75 bps, a significant increase not seen since 1994. The underlying narrative has broadened from concerns around high inflation and aggressive rate hikes to also include growth worries and recession anxiety. The 2s10s spread of the U.S. Treasury curve flattened dramatically in June, perhaps reflecting an outlook for weaker economic growth on the horizon. Both stocks and bonds in developed markets declined this month.

The iBoxx USD Asia ex-Japan Index dropped 2.28% in June and 10.2% YTD. Moreover, the index yield rose 0.52 bps to 5.83%, and the index spread widened 32 bps to 273 bps. Additionally, the cost of hedging this market from credit defaults, as tracked by iTraxx Asia exJapan Index (5Y), has risen to levels last seen in April 2020.

This month, negative performances were generally observed across maturity buckets. While the investment-grade (IG) and high-yield (HY) subindices fell in the red, the IG subindex outperformed its HY counterpart by 0.75%. Notably, losses increased in severity when descending from the BBB segment into the HY rating segments.

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S&P Latin America Equity Indices Quantitative Analysis Q2 2022

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Michael Orzano

Senior Director, Global Equity Indices

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Silvia Kitchener

Director, Global Equity Indices, Latin America

S&P Latin America Equity Indices Commentary: Q2 2022

Following a stellar Q1 in which the S&P Latin America BMI jumped 25%, the regional equity market fell back to Earth as second-quarter losses more than offset first-quarter gains. However, the region remained a relatively bright spot compared to global equities more broadly, as the S&P Latin America BMI was only down 3.5% YTD compared with losses of around 20% YTD for the S&P 500 and S&P Global BMI.

Global inflation concerns, rising interest rates in the U.S., the Russia-Ukraine war and political uncertainty with new governments in Chile, Peru and, most recently, Colombia have finally caught up with the region. In addition, Brazil, the largest market in Latin America, will be holding presidential elections this year, contributing to further uncertainty.

From a country perspective, Chile had the best returns in Q2, with the flagship S&P IPSA gaining nearly 0.30% in CLP. The broader Chilean index, the S&P/CLX IGPA, did better with a 3.1% return for the same period. All other markets, in local currency, had negative returns for Q2.

No sector was unscathed in Q2. It is interesting to note that while Health Care (-42.1%), Consumer Discretionary (-40.0%) and I.T. (-39.1%) were the worst performers, they were not necessarily the main contributors to the quarterly losses. It’s more likely that sectors with large representation in the region, such as Financials, Materials and even Consumer Staples, which were down 25.3%, 21.0% and 13.8%, respectively, had the most significant impact on the downturn of the equity market.

Similarly, most of the losses were driven by Brazilian and Mexican companies, which together represent about 88% of the S&P Latin America BMI. The top 10 index constituents accounted for nearly one-third of the Q2 index decline. Brazilian companies Vale S.A., B3 S.A. and Itau Unibanco had the most significant impact on the index.

Though it is perhaps not surprising that the markets have taken a turn for the worse given the local political turmoil, rising inflation, the Russia-Ukraine war and the lingering effects of COVID-19, it is still disappointing to see the markets drop this sharply. While there is no telling where the bottom may be, volatility is likely to continue. Let’s hope the next turn will be an upswing.

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iBoxx ALBI Monthly Commentary: June 2022

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Kangwei Yang

Director, Fixed Income Product Management

S&P Dow Jones Indices

June 2022 Commentary

Not since 1994 have we seen a rate hike of 75 bps by the FOMC as announced on June 15, 2022—its third hike this year. Many saw this rate hike as an affirmative and decisive move by the Fed to combat the highest inflation the U.S. economy has seen in decades. Through June, the 10-2 Year U.S treasury yield spread narrowed from 0.32% to 0.06%, signaling continued flattening of the yield curve, which might indicate poor sentiments in the near-term economy outlook.

The S&P 500® recovered slightly from losses in the first half of June but still ended the month with a 8.39% decline. U.S. Treasuries—proxied by the iBoxx USD Treasuries—were relatively flat, while U.S. TIPS—represented by the iBoxx TIPS Inflation-Linked Index—were up 0.97%.

In Asian fixed income, the iBoxx Asian Local Bond Index (ALBI) (unhedged in USD) lost 2.80%, with losses in 8 of the 11 sub-markets. South Korea (-2.58%), Singapore (-1.75%) and Hong Kong (-1.42%) were the bottom three performers, while only India (up 0.45%), Indonesia (up 0.20%) and China Offshore (up 0.06%) recorded gains in local currency terms in June.

Most parts of the yield curve across the individual markets saw red this month, with the largest losses concentrated in the long end. The South Korea 10+ Year (-5.01%), Singapore 10+ Year (-3.76%) and Hong Kong 10+ Year (-3.26%) were the hardest hit. India, on the other hand, was
the only market that saw gains across maturity bands.

Yields (in semiannual terms) rose in every market in June. As a result, the average index yield rose 22 bps to 4.22%. The largest uptick came from Hong Kong (up 40 bps), which, as of June 30, 2022, offered an average yield of 3.82%, its highest month-end yield since the inception of
the index. India remained the highest-yielding bond market in the index, offering 7.51%, while China Onshore (3.00%) replaced Singapore (3.18%) as the lowest-yielding market.

 

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U.S. Equities Market Attributes June 2022

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Howard Silverblatt

Senior Index Analyst, Product Management

Key Highlights

Market Snapshot

Enter the bear, exit the bull.  We decidedly entered a bear market this month, as higher inflation, higher interest rates and a slowing economy pushed the S&P 500 into official bear territory (down 20% from its last closing high, in this case Jan. 3, 2022’s 4,796.56).  It reached a closing low of -23.55% (3,666.77, on June 16), then seesawed upward, as buyers went bargain hunting, but with slower trading than when sellers dominated the market.  The S&P 500 closed the month at 3785.38, down 8.39%, and it closed at -16.45% for Q2 (the worst Q2 since 1970’s -18.87%) and -20.58% YTD (the worst start to a year since 1970’s -21.01% ).  Last Fourth of July, investors were opening their half-year statements with a 14.41% gain; now it’s a 20.58% decline.

At this point, inflation is being placed squarely as the fall guy for the market declines, as the market’s “expert” historians cite the Fed’s “excess” stimulus programs as the reason for the 40-year high inflation rate, and then the Fed’s attempts to Volker its way out of inflation and avoid a recession, with the market still split on if they can avoid one (but more seeing it than not).

As for the current downturn (which is broad), it should be noted where it came from.  The S&P 500 posted a closing high pre-COVID-19 on Feb. 19, 2020 (3,386.15), and it quickly declined 33.93% by March 23, 2020 (closing at 2,237.40), reacting to the pandemic.  It also quickly rebounded from that low to set a new closing high on Aug. 18, 2020 (3,389.78), 181 days later, and it set another 90 new closing highs until this year’s Jan. 3, 2022, closing high (4,796.56).  During that time period, earnings (operating and as reported), sales, cash-flow, buybacks and dividends all set new records. 

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ETF Transactions by U.S. Insurers in Q1 2022

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Raghu Ramachandran

Head of Insurance Asset Channel

Introduction

In the first quarter of 2022, insurance companies traded USD 19.5 billion in ETFs; this is roughly in line with the amount traded in the first quarter for 2020 and 2021.  However, insurers only added USD 0.2 billion in ETFs to their general accounts, which was much lower than the past two years.  Insurers continued the trend from 2021 of selling Equity ETFs and buying Fixed Income ETFs.

ETF Trades

In the first quarter of 2022, insurance companies traded USD 19.5 billion in ETFs.  This is down from USD 24.6 billion in the first quarter of 2020 but higher than USD 15.2 billion in Q1 2021 (see Exhibit 1).

As we have seen before, companies traded more at the end of the quarter.  Indeed, companies traded more in March than in January and February combined (see Exhibit 2).

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