Insights for professional partners

We can see a path to a new bull market in the second half of 2023, but we’re not there yet.

In the midst of what continues to be a turbulent year for investors, our lead article explores the varied challenges facing some of the world’s major economies, and the likelihood of different inflation and recession scenarios coming to fruition.

Our latest Insights highlights why we still see US or global recession as unlikely over the next 12 months, despite what you might be reading in the headlines of the financial press. In any case, no two downturns are the same (each is unhappy in its own way), and a crucial point that often goes missing in the current debate is that it’s still too early to be clear about what kind this one will be, and therefore how to properly defend portfolios against it.

In the midst an unfolding humanitarian crisis, our thoughts are first and foremost with the people of Ukraine. But we also have a duty to our clients to monitor the investment impact of the war, and we set out some of the investment implications of these challenging times in our latest Investment Insights publication.

The events happening in Ukraine first and foremost provoke our deepest sympathies for the human suffering that is being brought about. We also have a duty to our clients to monitor the economic and market impact and keep you informed about the investment implications. What seems clear to us is that the conflict has increased both the upside risks to inflation and the downside risks to global growth.

Most geopolitical crises of recent years have hit local markets hard, but at worst done only fleeting damage to global indices. However, there are three events that buck this trend: the 1973 Yom Kippur War/OPEC oil embargo; the 1979 Iranian Revolution; and the 1990 Iraqi invasion of Kuwait. All centre on the price of energy.

A similar oil and gas shock in Eastern Europe as a result of fighting in Ukraine would exacerbate the already sizeable risk that high inflation becomes endemic, which would then require tighter monetary policy to get it under control.

It’s been a difficult start to the new year for investors, with the global equity benchmark falling into so-called ‘correction’ territory. We can't say for sure when the pain will end, but for the reasons set out in this update, we are confident the correction will be short-lived.

Global equity and bond markets had a bumpy end to 2021 as investors began to fear the worst of both worlds — stagnating output and persistently rising inflation, that nasty combination called stagflation. While we do think inflation will begin to fall back from the spring, there is considerable uncertainty around its outlook. However, fears of stagnating growth look overdone.

Our lead article looks at the buzzword of the moment — stagflation. As investors’ fears of the potential stagnation of output coupled with rising inflation ebbed and flowed, equity and bond markets experienced some volatiliy. What will this uncertainty mean for the year ahead?

Our lead article explains that as China’s recovery slows, policymakers there look unlikely to stimulate growth by loosening either the monetary or fiscal purse strings.

For many years the fortunes of the FTSE mining sector have been linked to developments in China. Rapid growth in demand for commodities like iron ore and copper in the late 2000s led to what became known as the first mining supercycle. That was followed by a downturn from 2011—15 as slowing demand from China combined with overexpansion of mining production.

In our first article, we explore how benchmark US government bond yields spiked as investors braced themselves for the release of pent-up consumer demand, encouraged by Joe Biden’s $1.9 trillion stimulus package. We take a look at where US bond yields and interest rates may go from here, and what that means for equity investors.

The global economy is waking up from its medically induced coma as lockdown measures to combat the spread of COVID-19 are eased. With high levels of unemployment, ongoing social distancing measures and the risk of a second wave, what will economic activity look like over the coming months?

Markets have rallied strongly as investors look forward to better days ahead. It’s often difficult to work out what’s happening in the middle of a crisis, and we don’t know what will return to normal and what will have changed forever.

Markets have reacted to the collapse in demand that will be wrought across many sectors by attempts to contain the coronavirus outbreak, as conferences, business travel and holidays are cancelled and consumers are encouraged to stay indoors.

The longer the crisis lasts, the greater the risk that companies will face severe cash flow problems. When the economic tide is turning, as it is now, any shortcomings of business models are left exposed. As Warren Buffett famously said: “It’s only when the tide goes out that you learn who’s been swimming naked.”

How low can yields go?