MONTHLY RECAP: BEST OF MARCH 2022

Now that April has kicked in, let's recap and see how market news developed on the week-to-week basis last month.

WEEK 1 (28/02 - 06/03)

EUROZONE: HOW THE UKRAINE CRISIS AFFECTS THE VALUE OF THE EURO

Surely you have noticed that investors have increasingly invested in the "safe haven" gold in recent weeks and days. However, in addition to gold, foreign currencies are also among the investments that are increasingly in demand in times of crisis. This refers primarily to the U.S. dollar (USD), the Swiss franc (CHF) and the Japanese yen (JPY). If these currencies enjoy increased popularity, this immediately weakens the euro (EUR).

The foreign currencies are currently so popular because economic consequences for the euro area are expected due to the Ukraine crisis. If the euro loses value, foreign imports will automatically become more expensive to us. However, there is an economic opportunity for strong exporters, as our goods will become cheaper for foreign consumers.

Economically, this represents an opportunity for these companies, but it remains to be seen how the ECB's further approach to interest rate hikes in the eurozone will be handled. Interest rate hikes generally have a positive effect on the euro, as the currency becomes more attractive to foreign investors. Did you know that there is an index that tracks the German DAX companies with the strongest exports? If you look at the following WKN index, you can see well how it has benefited from the weakening of the euro within the last few days: A0C4BX.

WEEK 2 (07/03 - 13/03)

GLOBAL: INDEX PROVIDERS ARE THROWING RUSSIAN STOCKS OUT OF INDEXES

You must have noticed how many large, established companies have divested themselves of their Russian production facilities, branches or business partners in recent days. But the investment industry has not been inactive either. For example, one of the largest index providers, MSCI (Morgan Stanley Capital International), has announced that it is banning Russia from its indices.

What exactly does this mean for you now? First of all, you need to know that Russia has been classified as an emerging market. If your MSCI World is labeled "ACWI" (All Country World Index), your index contains industrialised countries as well as emerging markets. Russian stocks will now be removed from the emerging markets component, and your exposure to Russia will be reduced to zero. The same applies to the MSCI Emerging Markets: you will no longer find any Russian stocks either in the future.

We remember: there is an index provider (in this case it is MSCI), which specifies the selection of stock titles. Then ETF providers replicate this index and you can buy it on the stock exchange. So now it is up to the ETF providers to realise this change and sell the Russia stocks. But here comes the problem: the Russian stock exchange is closed for foreign investors and there are no other investors who want to buy the Russian stocks at bargain prices from the ETF providers. This way you could end up with the curious situation that the indices no longer contain any Russian stocks, but they are still present in your ETF because your ETF provider is currently unable to sell the stocks.

WEEK 3 (14/03 - 20/03)

GERMANY: ECONOMIC OUTLOOK WORSENED

The war in Ukraine is shaking the world and causing economic expectations in Germany to fall sharply. The Center for European Economic Research (ZEW) published its economic index on Tuesday, for which the institute surveys 162 analysts and investors every month. The result was devastating: compared to the previous month, economic expectations fell by a whopping 93 points. By comparison, in March 2020, at the start of the Corona pandemic, the index lost just 52 points.

An economic recession is looking increasingly likely, according to economists. Now you may be wondering, what exactly constitutes a recession!? First of all, we need to look at what economic phases there are in the first place: the cycle begins with the economic upswing and then transitions to the boom. This boom phase is followed by the recession. This is characterised by pessimistic economic forecasts and is accompanied by a decline in demand. As a result, store shelves become overcrowded in the short term, as companies are only able to respond to the drop in demand with a delayed production of goods. In addition, fewer investments are made, as companies wait to see how the uncertain economic situation develops.

The stock market is also affected during this phase. As a long-term investor, however, you need not fear the economic downturn, since short- and mid-term volatility is not of interest to you! By the way, the last phase of the economic cycle is the economic low, also called depression or trough, after which the economic cycle starts again at the upswing.

WEEK 4 (21/03 - 27/03)

RUSSIA: IS STATE BANKRUPTCY STILL AVOIDABLE?

Is the country already insolvent or not? And what actually triggers a sovereign default? In the middle of this week, Russia is supposed to have arranged its outstanding payments to its creditors, according to the Russian Finance Ministry. However, no money has yet arrived at the foreign lenders. In the meantime, however, it is no longer exclusively a question of whether Russia "can" make the payments, but rather whether it "wants" to do so at all. Experts now agree that a state bankruptcy can hardly be averted, which means that Russia would no longer receive money from the West in the future and could thus be motivated to simply keep the outstanding or remaining money.

What actually happens when a state goes bankrupt? If a state goes bankrupt, it can no longer service its outstanding credit liabilities. In this case, the lenders are left empty-handed or receive only a portion of their claims back. This usually hits local banks particularly hard, as they often act as lenders to their own country. The consequence: a banking crisis. In addition, demand in the respective country is weakened, as no major investments are made for the time being due to the uncertain economic situation. This is often followed by an economic crisis. The economic crisis results in foreign investors withdrawing, causing the local currency to lose value. This can be followed by a currency crisis. Many people would then lose their jobs and the state often cannot provide financial support due to lack of funds. The Russian sovereign default would also have a negative impact on the European banks that have acted as lenders. However, the resulting loss would be bearable for the banks. How the effects are reflected in your portfolio depends on the number of your Russia investments.?

By the way a newsletter reader question reached us this week about this exact topic. Read below to find out how to recognise bonds with low default risk!

WEEK 5 (28/03 - 03/04)

GERMANY: COMPANIES HIRING FEWER PERSONNEL

The uncertainty caused by the Ukraine crisis is also reflected in the labor market. The willingness of companies to hire new employees has fallen to its lowest level since May 2021. However, a wave of layoffs is not expected.?

?Many companies are waiting for materials due to restricted supply chains and therefore cannot produce at their usual high level and therefore have no need for new employees. Another problem are high energy prices: Companies have often worked out a fixed budget for their production costs. Now, if one element from this cost pool rises sharply, the cost of another element must be reduced in order to continue to generate profits. Some companies have therefore put their employees on short-time work. However, short-time work measures are not suitable for cushioning high energy prices. At most, they could play a supporting role in the event of supply chain bottlenecks.

The low willingness to hire extends across all sectors. Although most restaurants, bars and clubs, for example, are now allowed to reopen after the Corona restrictions were lifted, the willingness to hire is also low here. This means that companies do not want to hire new employees in this economically uncertain situation.?

It remains to be seen how the consequences of the hiring freeze will affect the German economy. In general, however, the rule of thumb applies: if less is produced, less is earned, and this leads to a drop in the stock market price.

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