Quarter in review (Vanguard Australia)

Global markets advanced through the first quarter of 2023 with generally positive returns in both equity and bond markets. Inflation and the tightening of central bank policy remained in the spotlight for the markets, punctuated by a spike of volatility triggered by the failing of two large U.S. banks in March, and UBS’s takeover of the failing Credit Suisse in Europe.

The global equity market experienced a strong start in January as markets looked towards signs of fading inflation as a signal that central banks may soon pause the interest rate hiking cycle, providing relief to borrowers. However, markets reversed course over February

as stronger-than-expected inflation data prompted central banks to continue hiking.
In March, the collapse of SVB contributed
to a spike in volatility, but the tension was eased as central banks and regulators intervened, soothing market concerns over the banking sector.

Overall, global equity markets closed the quarter 7.2% higher in local currency terms (Figure 1) as equity indexes held on to their January gains. The S&P/ASX 300 Index returned 3.3% over the quarter as all sectors except energy and financials advanced. Similar sector weakness in global equities were offset by a resurgence in technology companies. Emerging markets stocks returned 3.8% over the quarter, weaker than their developed peers, as the U.S. dollar strengthened in February, which can be a headwind for emerging markets equities. Bonds also advanced as investors sought safe-haven assets and expectations for interest rate rises eased (Figure 2).

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