A bit like Spotify Wrapped, where the streaming platform’s final list of your most-heard songs in a year never matches your expectations, the end-of-year performance ranking of major stock indices around the world also contains a few surprises.

Brazil’s Bovespa index is not the outright winner for 2022 as many might have expected. It’s been pipped at the post by India’s S&P BSE 100 index, a country where the impact of inflation on economic activity is less severe than in many other parts of the globe. Between 1 January and 1 December 2022, the Indian index advanced 8.3% in value.

The world economy is set to have weakened from 6% GDP growth in 2021 to 3.2% in 2022 and then slow further to 2.7% in 2023, according to the International Monetary Fund. Against this backdrop, India is expected to have fared relatively well with 6.8% GDP growth in 2022 (versus 8.7% in 2021) and advance 6.1% next year. That’s certainly better than China whose GDP growth is expected to nearly halve between 2021 (8.1%) and 2023 (4.4%).

As a nation rich in commodities production, it’s certainly been a good year for Brazil as the prices of two of its biggest exports – soybeans and crude oil – soared. Names like petroleum giant Petrobras (PBR:BCBA) and miner Vale (VALE3:BVMF) are key constituents of its stock market and their share price success this year has contributed to a 7.3% rise in the Bovespa index.

FTSE TO THE RESCUE

In third position, and the only other major index to record a positive performance year-to-date, is the UK’s FTSE 100. The blue-chip index managed to advance 2.6% which was commendable under the circumstances of highly volatile global markets. Propping up the FTSE 100 were notable gains from the energy and tobacco sectors, the latter area attracting investors for low equity valuations and resilient earnings in any type of economic scenario.

The fact UK stocks in general remain cheap relative to many other parts of the world, together with the FTSE 100’s upbeat performance this year, might be enough to win over more people. For years the UK has been ignored by overseas investors because of a lack of companies offering high levels of growth – but we’re now in a different environment that favours more reliable earnings, and it is here where pockets of the UK shine.

JAPAN HOLDING UP WELL

The Japanese market is unloved by many investors who think the country suffers from sluggish economic growth and is at a disadvantage from its unfavourable demographics. What’s underappreciated is how many Japanese companies are embracing better corporate governance standards, paying out more generous dividends and how the country is leading the way with automation and artificial intelligence.

The plethora of cash-rich companies and cheap equity valuations have started to attract the attention of more investors, and it’s interesting to note how the Nikkei 225 index has done a lot better on relative terms than many other markets during 2022. It is only down a mere 2% versus double-digit losses from China and the US.

WHY US INDICES SLUMPED

As for the worst performing markets, US stocks went off the boil in 2022 and the year has been a shocker for investors with big exposure to this part of the world. After such a long period of delivering outsized returns, many of the US mega-cap names on the stock market went into reverse and recorded share price losses between 20% and 40%.

A lot of the losses were simply down to a derating rather than a slump in earnings. Put simply, many investors were no longer prepared to pay high multiples of earnings for the shares. A good example is Microsoft (MSFT:NASDAQ) – at the start of 2022 it was trading on 37 times earnings but the shares now only trade on a 26-times multiple. A strong dollar has also worked against the multitude of US companies which earn in other currencies.

The result was a 14.4% decline in the S&P 500 index and a 26.7% slump in the Nasdaq index.

Interestingly, the US was not home to the absolute worst performing index among the major markets. That wooden spoon award goes to the UK’s AIM 100, down 31.4% this year. Eighty-two of its constituents saw a share price loss between January and the start of December, 18 of which fell by more than 50%.

AIM stocks have historically been popular with individuals looking for large returns by backing risky companies. It’s fair to say that 2022 was the year when many people who started investing during the pandemic lost interest in shares and cut their losses, so we lost some of the audience for more speculative AIM names.

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