Just as the world looked to be returning to normal from the impacts of the Covid-19 pandemic, Vladimir Putin’s invasion of Ukraine set off a chain of events that led to Shell posting its most profitable year on record, and the most ambitious pro-renewables legislation in US history. From Twitter to Truss, we review the biggest news stories of 2022, and how they impacted markets.
1. Oil — and Shell’s share price — soars during Ukraine war
On 24 February, Vladimir Putin launched a full-scale invasion of Ukraine, which is still ongoing. As the invasion broke, the price of gold and oil — traditionally safe hedges during periods of geopolitical turmoil — rocketed, and the story of the latter commodity has defined much of the rest of 2022’s financial news.
The US, the UK and the European Union, as well as many others worldwide, imposed sanctions on Russian businesses. While these hampered the Russian economy, they also had an inflationary impact on the price of oil. This was exacerbated by September’s seemingly deliberate destruction of the Nord Stream pipelines carrying oil from Russia to Germany.
This sparked a boom for oil and gas stocks such as Shell [SHEL.L].
Shell’s share price gained 26.6% between 21 February and 8 June, and closed 14 December up 46.8% year-to-date. Shell posted its three most profitable quarters in its history this year, with $11.5bn in the second quarter being the highest of the three. There are suggestions the oil rush might be over, however, with the stock flatlining over the three months to 14 December.
2. Twitter rises, falls and goes private in Elon Musk takeover
The story of Elon Musk’s acquisition of Twitter goes back to January 2022, when the world’s richest man started buying shares in the company, becoming the largest shareholder on 4 April, when Twitter’s share price gained 27.1%.
After accepting, then declining, an offer to join Twitter’s board, Musk moved to acquire the social media platform on 14 April. While Twitter’s board initially responded with a poison pill strategy, they unanimously agreed the $44bn offer on 25 April. Twitter’s shares gained a further 5.7% on the day.
Then, late on 8 July, Musk announced he was pulling out of the deal, claiming that Twitter had provided insufficient information on the number of bots and fake accounts it hosted. Twitter’s board hired lawyers to take Musk to court to enforce the deal.
Before the trial began, however, Musk retreated, and announced that he would see the deal through, despite “overpaying” for the stock. The deal was closed on 27 October, when the New York Stock Exchange (NYSE) delisted Twitter’s shares. TWTR’s final closing price of $53.70 was a 24.2% increase on the start of the year.
3. Biden’s Inflation Reduction Act boosts Enphase
The invasion of Ukraine led many counties to reconsider their dependence on fossil fuels.
In August, Joe Biden passed a landmark piece of legislation in response. The Inflation Reduction Act (IRA) was signed into law on 16 August, and contained a raft of tax subsidies and investment incentives for clean energy companies based in North America.
When the deal was announced on 28 July, clean energy stocks rocketed. Enphase Energy [ENPH] had just announced a positive set of earnings, and between 26 July and 28 July its share price surged 26.9%.
Within months, the IRA’s provisions have seen an increase in renewable energy investment in the US. Enphase announced in December that four to six new solar microinverter production lines would be built in the US, thanks largely to tax credits issued by the IRA.
As of 13 December, Enphase’s share price had gained 81.9% in 2022, making it one of the year’s biggest winners.
4. Lloyds’ stock stumbles following UK mini-budget announcement
The UK has had two monarchs, three prime ministers, and four Chancellors of the Exchequer during 2022. Rishi Sunak has held two of those positions; the brief interregnum before he became Prime Minister, however, achieved notoriety for all the wrong reasons.
On 23 September, Britain’s then-Chancellor Kwasi Kwarteng announced a budget that included huge spending increases to ease the cost-of-living crisis, especially in support for rising energy bill payments. These were accompanied by large tax cuts, including an abolition of the 45% top rate.
Markets rejected the “mini-budget” outright. The pound plummeted to an all-time low, and UK bond yields rose to their highest levels since 2008. The Bank of England issued a statement asserting that it would not hesitate to hike interest rates, causing turmoil in mortgage markets.
The share price for Lloyd’s Banking Group [LLOY.L], the UK’s largest lender, fell 20.2% between 20 September and 12 October, when reports emerged that Prime Minister Liz Truss was on the verge of rowing back on many of the budget’s provisions.
Investors in the WisdomTree FTSE 100 3x Daily Short [3UKS.L] fund, which provides minus 200% of the returns of the FTSE 100, gained 14.2% between 22 September and 12 October. Almost everyone else, however, took a serious hit.
5. Alibaba struggles with China's zero-Covid policy
Chinese stocks were already reeling from the impact of Covid-19 by the start of 2022. As of 1 January, Alibaba’s [BABA] stock had fallen 45% over the preceding two years, with frequent lockdowns suppressing economic activity across the world’s largest population.
Alongside crackdowns on internet platforms Beijing felt were becoming too influential, the zero-Covid policy continued through 2022. By 15 March, Alibaba’s stock had fallen a further 35.4% since the start of the year.
The situation simmered until mid-November, when Beijing announced a shortening of its quarantine requirements, sparking a rally in Chinese stocks driven by optimism that Covid restrictions would continue to ease. Strategists were characterising Alibaba and other such stocks as “incredibly cheap” given how much they had fallen through the year.
The upturn, for Alibaba and for China, was briefly interrupted when protests broke out against ongoing restrictions in late November. These appear, however, to have triggered a softening of the government’s approach, and regulations continued to ease through the early weeks of December. Since reaching a year-low close of $63.15 on 24 October, Alibaba shares rallied 44% to 14 December.
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