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S&P Kensho New Economies Commentary: Q3 2022

S&P Latin America Equity Indices Quantitative Analysis Q3 2022

iBoxx SGD Monthly Commentary: September 2022

iBoxx Tadawul SAR Government Sukuk Indices – Q3 2022

iBoxx USD Asia Ex-Japan Monthly Commentary: September 2022

S&P Kensho New Economies Commentary: Q3 2022

The S&P Kensho New Economy Indices seek to track the industries and innovation of the Fourth Industrial Revolution

Thematics centered around innovation continued to face macro headwinds as markets grappled with simultaneous losses across equity and bond benchmarks. The S&P 500® initially broke from its Q2 2022 downtrend, rising during the early half of the Q3, but it then retraced all of its gains in the latter half and reached new YTD lows. This is the third consecutive quarter of negative returns for the S&P 500, last seen in 2009. Persistently elevated inflation has kept the Fed’s action and intent on a tightening path, increasing the benchmark rate to its highest since 2008—the fastest pace since the 1980s. As a result, the U.S. bond markets have suffered their biggest drawdown since the 1980s, with global bond markets not faring any better.

In contrast to the equity and bond markets’ weakness, U.S. Dollar strength has extended into Q3 2022, becoming the longest USD strengthening cycle in its history. The knock-on effects of a stronger dollar have exacerbated the drawdowns (in USD terms) among emerging market equities and have likely influenced their central banks’ fiscal policies. Overall, the macro environment (core rates, oil and inflation, among others) appears to be dictating the markets’ near-term risk appetite. The impact on global energy prices from the ongoing Russia-Ukraine conflict remains in focus, as energy-related themes posted another strong quarterly performance.

Top Three from across the New Economies

Clean Energy (13.1%): KCLEAN, which focuses on clean energy production technologies, saw the biggest YTD rally (about 45%) during the late July-early August period, when the U.S. Senate approved the climate bill allocating more than USD 300 billion to reduce carbon emissions and improve domestic clean energy security. However, as sustained high inflation prints spooked the markets in August, KCLEAN gave up some of these returns to finish the quarter up 13%. Of the 33 stocks in the index, 18 were positive contributors to KCLEAN’s Q3 returns, supported by a breakout in solar energy firms. One of the top contributors was First Solar, which ended the quarter up 94% to reach its highest level in a decade, likely a beneficiary of the climate bill due to its focus on American-made solar modules. Array Technologies also showed robust Q2 revenue growth, and its earnings beat the consensus analyst estimates, while Maxeon Solar, with a 78% quarterly return, reached a YTD high. On the flip side, Chinese solar firms Daqo and JinkoSolar were among the top underperformers, albeit still on a strong footing in YTD terms.

Distributed Ledger (4.5%): KLEDGER, which targets companies involved in distributed ledger technology, posted its first positive quarterly return after two consecutive negative quarters. KLEDGER’s performance was closely tied to that of Bitcoin, with the relief rally (up 58%) lasting the first half of the quarter but losing steam midway and giving up most of its early quarter gains (-35%). The largest net positive contributors to the index were the high beta plays of crypto miners Marathon Digital (up 100%) and Riot (up 67%), followed by crypto trading platform Coinbase (up 37%). Chinese blockchain-related firms Alibaba (-58%) and OneConnect (-29%) were the weakest performers, accounting for nearly one-half of the negative contributions from the index’s constituents. Recent regulatory concerns and a broader selloff in Chinese technology stocks have adversely impacted these firms. Despite its marginally positive quarterly performance, the index sits near its lowest level in four years, reflecting the challenging macro environment.

S&P Latin America Equity Indices Quantitative Analysis Q3 2022

S&P Latin America Equity Indices Commentary: Q3 2022

What a year it is turning out to be for Latin American equities. Despite the turbulence of the past three quarters, Latin America has been resilient. The S&P 500® and S&P Emerging BMI have
declined in every quarter of 2022 and have lost more than 20% each YTD as of Sept. 30, 2022. Meanwhile, the S&P Latin America BMI gained 3.6% in Q3, edging into positive territory YTD.

While returns have been mixed across countries and quarters, it’s clear that Chile and Brazil’s stellar performance contributed to Latin America’s overall gains. Moreover, among global
country indices Chile and Brazil ranked among the top five best performers for Q3 and YTD.

The story in the region has not changed much since last quarter, with inflation, rising interest rates, the Russia-Ukraine conflict and domestic political uncertainty continuing to loom over the
region. Despite these headwinds, markets in general have done relatively well in Q3. Except for Colombia and Mexico, all other equity markets gained during the quarter, with Argentina’s
S&P MERVAL posting the largest gains of 57% in ARS. Chile’s S&P IPSA ended the quarter up 3% in CLP, and it was the only index with positive returns for every quarter of 2022. The S&P
Brazil BMI’s strong returns of nearly 12% offset Mexico’s S&P/BMV IRT loss of 6%.

In terms of sectors, most ended on a positive note, with top performers Information Technology, Consumer Discretionary and Energy posting gains of 27.5%, 18.6% and 16.6%, respectively.
The Financials sector, which gained 8.3%, and the Energy sector, up 16.6%, were the largest contributors to the overall returns for the region. Materials (-6.0%), the second-largest sector in
the region after Financials, had the largest negative impact on the region’s returns for the quarter.

The top 10 largest companies by index weight, representing over 30% of the index, had a significant impact on performance in Q3. Specifically, Brazilian giants Petrobras and Itau Unibanco
were major drivers in leading the region to positive territory. Mining companies like Brazil’s Vale, Mexico’s Grupo Mexico and Peru’s Southern Copper were significantly affected by the drop
in metal prices for iron ore and copper, which were down 18.3% and 22.0% YTD, respectively.2 Communication Services ended the quarter at the far end of the negative side, driven by
Mexico’s America Movil's price drop of nearly 13% for Q3.

Despite the ups and downs of the markets, Latin American equities have remained resilient so far. As we enter Q4, it will be interesting to see if the region can hang on to these gains and
hopefully add some more as the year comes to an end.

iBoxx SGD Monthly Commentary: September 2022

September 2022 Performance

The rise in headline inflation continued to underpin the market narrative in Singapore. On a year-over-year basis, the Monetary Authority of Singapore (MAS) Core Consumer Price Index (CPI) climbed to 5.1% in August from 4.8% in July, while the CPI-All Items rose to 7.5% in August, up from 7.0% the month before. Food, Services and Private Transport were the main components contributing to the price pickup in the CPI measures.

As global central banks stepped up their fight against inflation and raised rates aggressively, the Singapore government bond yields have been on an uptrend analogous to those seen in other major economies. In September, the 10-year Singapore sovereign benchmark yield reached 3.49%, the highest level since July 2008. Against this backdrop, neither stocks nor bonds were able to build up any positive local momentum.

The Strait Times Index shed 2.84% this month, as the market assesses the implications of further rises in inflation risk and bond yields for economic activities domestically and abroad.

Similarly, the iBoxx SGD Overall Index dropped 2.59% this month and 9.04% YTD, resuming its monthly downtrend this year. The index finished the third quarter with a duration of 6.68 years and a yield of 3.70%.

With a proportion of over 60% by market value in sovereign bonds, the performance of the overall index this month was largely dragged down by sovereign bonds, which underperformed non-sovereign bonds by 97 bps.

iBoxx SGD Monthly Commentary: September 2022: Exhibit 1

iBoxx SGD Monthly Commentary: September 2022: Exhibit 2

Amid a rapid rate-rising environment this month, all individual rating subindices fell into the red, with the sharpest declines generally observed in the mid-to-long end of the curve. Among the rating subindices, the best relative performance came from sectors rated BBB and below, notably the high yield subindex, which outperformed the investment grade subindex by 148 bps.

iBoxx SGD Monthly Commentary: September 2022: Exhibit 3

The top five performers were all corporate bonds in the 1-10 year maturity segment, with four subordinated hybrid securities from the Financials sector and one senior fixed-rate debt (NISSGP) from the Consumer Services sector.

On the other side, the worst five performers were all sub-sovereign bonds, except for a subordinated fixed-to-float perpetual bond by Credit Suisse Group AG (CS). These laggards each dropped more than 5% in the index this month.

iBoxx SGD Monthly Commentary: September 2022: Exhibit 4

iBoxx Tadawul SAR Government Sukuk Indices – Q3 2022

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Paulina Lichwa-Garcia

Associate Director, Fixed Income Indices

S&P Dow Jones Indices

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Florian Guth

Principal, Fixed Income Indices

S&P Dow Jones Indices

iBoxx Tadawul SAR Government Sukuk Index

The iBoxx Tadawul SAR Government Sukuk Index came under renewed pressure during the third quarter, with prices coming down from August onwards. The Total Return Index (TRI) rose in mid-August to its highest level since Q1, flirting with a 106 level before dropping sharply throughout September (see Exhibit 1). The 5-10-year maturities were the most affected and fell at the sharpest rate.

iBoxx Tadawul SAR Government Sukuk Indices – Q3 2022: Exhibit 1

In relative terms, the Sukuk bond market has also outperformed other emerging markets, a segment that has been affected by the strengthening U.S. dollar and the hiking rates cycle in the past months. The annual yields of the iBoxx Tadawul SAR Government Sukuk kept well below that of the iBoxx Global Emerging Market USD Aggregate Index (USD unhedged), as Exhibit 2 shows. The spread between these two indices widened sharply in July in the aftermath of a reported liquidity injection from the Saudi Central Bank (SAMA) into the country's banking system. Compared with developed markets, Saudi Arabia's inflation is seeing a stark contrast to the elevated levels across most economies, with its inflation rates keeping well on the lower end, at 3% as of the August 2022 reading.

iBoxx Tadawul SAR Government Sukuk Indices – Q3 2022 - Exhibit 2

iBoxx USD Asia Ex-Japan Monthly Commentary: September 2022

September 2022 Commentary

Volatility in financial markets amplified in September. The S&P 500® (-9.34%) had its worst month since March 2020, and U.S. Treasuries saw large drawdowns, with the 2-year and 10-year yields topping 4.30% and 3.97%, respectively.

The fight against inflation intensified, as global central banks coordinated policy responses to raising benchmark rates. In the U.S., the five-year breakeven inflation rate declined steadily, suggesting inflation expectations may be moderating. However, the combination of rising rates and a persistently inverted yield curve brought a renewed focus on a recession narrative.

Across the Atlantic, the new fiscal stimulus plan announced recently by the U.K. government rattled financial markets. The proposed fresh spending and tax cut raised concerns over the country's higher funding costs, which later sent bond yields higher globally. Meanwhile, the greenback, which is typically regarded as a safe-haven currency for investors in periods of uncertainty, moved up 3.15% this month.

With U.S. yields rising rapidly to high levels in September, Asian USD bonds recorded yet another month of negative performance. As shown in Exhibit 1, the iBoxx USD Asia ex-Japan Index fell 3.43%, as all other major subindices of the overall index moved largely lower.

Moreover, the overall index yield rose 92 bps to 6.74%, and the overall index spread widened 28 bps to 272 bps.

iBoxx USD Asia Ex-Japan Monthly Commentary: September 2022: Exhibit 1

This month, the investment grade (IG) and high yield (HY) subindices both sank into negative territory, though the IG subindex outperformed the HY by a wide margin (196 bps). In the IG and HY segments, losses were generally seen across the curve, with long-end maturity buckets logging the largest casualties. Notably, the HY subindex yield surged by 3 percentage points, and the spread widened by 227 bps.

iBoxx USD Asia Ex-Japan Monthly Commentary: September 2022: Exhibit 2

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