Mosaique Views: Asset allocation

 JULY / August 2022

Russia’s attack on Ukraine will lower growth and boost inflation

 

Our thoughts remain with those hurt by the dreadful conflict still raging, which puts our economic concerns firmly into perspective. Those concerns should perhaps be a little less pressing anyway. The conflict has had less of an impact on the global economy, so far, than it might have done.

Growth may be slowing, but there are no signs yet of the feared recession. Developed economies had momentum going into this geopolitical crisis – not least because of the widespread post-pandemic re-stocking of inventories. In China, the recently-renewed covid-related lockdowns are being eased, promising a rebound in growth there.

Energy costs in real terms are still not as elevated as they appear – real oil prices were higher in 2012 – and even the more extensive shunning of Russian exports by the West might not trigger more dramatic spikes. 

Nor are monetary conditions especially tight. If anything, real interest costs and debt burdens have fallen over the last year, even as policy rates have started to rise, as a result of the surge in inflation.

So, talk of “stagflation” still seems premature to us. That said, the investment climate remains riskier. We hope for a peaceful settlement soon, but escalation is also possible even now: rationality may not prevail. And central banks will not allow policy to stay this loose: interest rate expectations have resumed their pre-crisis upward drift.

We had already reduced our equity weightings in the New Year as it became clear that central banks were indeed planning (rather belatedly) to start normalising monetary conditions that had become needlessly lax. We reduced them further on news of the invasion.

However, our equity holdings have returned to neutral only: we still see corporate profitability staying healthy,
and valuations, while stretched, are not outlandish. And the funds released have been held as liquid assets.

We did not think the reduction in global risk appetite would be big enough for bonds to rally for long. That said,
with some government bond yields in the US recently offering positive real yields to maturity, we are now
beginning to reduce our long-standing underweight in bonds there.

Read more articles

  • Making better investment decisions

    Quarterly Letter

    Humans are irrational beings, yet economic theory often assumes we are perfect decision makers. In this Quarterly Letter we examine some of the common mistakes people make, and explain how acknowledging these flaws can strengthen, rather than weaken, our investment decisions.

  • Using Lombard lending to maximise your wealth

    Insights

    No parent wants to pass on wealth to their children and watch them fritter it away. Here’s how to give your family the best chance in life while ensuring your wealth is protected for generations to come.

  • Insights: Issue 12

    Market Commentary

    The 12th edition of Mosaique Insights takes a closer look at an industry that has experienced significant transformations in recent years and explore how we can assist our clients in navigating complex market environments. Additionally, we shed light on the asset class of private markets and take you on a trip to the United States with our equity research team.

  • Rothschild & Co hires Andrew Yearley as Global Co-Head of Restructuring

    Press releases

    Key senior hire strengthens and further enhances the firm’s Restructuring practice in North America.

  • How to prepare the next generation for wealth

    Insights

    No parent wants to pass on wealth to their children and watch them fritter it away. Here’s how to give your family the best chance in life while ensuring your wealth is protected for generations to come.

  • Summertime blues

    Market Perspective

    Interest rates are still rising, turning government bonds into an attractive option for investors looking to preserve their wealth. In this Market Perspective we assess how bonds now compare to stocks, and examine falling global inflation.

Back to top