Mosaique Views: Markets in perspective

September / october 2022

Markets are still grappling with interest rate and geopolitical risk

 

Our thoughts remain with those hurt by the dreadful conflict still raging, which puts our economic concerns firmly into perspective.

In the last month, those concerns have nonetheless become a little more pressing. Inflation and interest rates have yet to peak, and growth is slowing.

However, the severity of the downturn is still unclear. Europe is most at risk from higher energy costs, and in many cases from energy supply shortfalls this winter. As yet, however, despite widespread expectations of an imminent and sharp recession, forward-looking data have been slowing gradually, and governments seem likely to act further to protect poorer households from the worst of the energy squeeze.

Elsewhere, the important US economy is less exposed, and enjoys some underlying momentum (despite its poor GDP showing in the first half). China faces ongoing structural headwinds, but its immediate covid-related constraints have been eased, and it enjoys the rare luxury of a low inflation rate, allowing its authorities to follow a more lenient monetary policy.

So, talk of “stagflation” again seems premature to us. That said, the geopolitical climate remains troubling, and not just on account of the trauma in Ukraine. The West has been reminded that China’s claim on Taiwan is not negotiable (though that does not mean that it is imminently actionable either).

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 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. Cash may not offer positive real returns, but it is more stable than securities.

We retain a long-standing underweight in bonds. With some government yields in the US now offering positive real yields to maturity, we have begun to reduce our longstanding underweight in bonds there. In Europe, however, most bonds still seem unlikely – despite recent yield increases – to deliver inflation-beating returns even on a long-term view.

Read more articles

  • Asset Management: Monthly Macro Insights - December 2023

    Market Commentary

    Economic growth in advanced economies has been very weak in Q3-23, but the US was the notable exception, giving the impression the global economy remained resilient. Are we on a path of ‘immaculate disinflation’, or is the fall in inflation increasingly the reflection of a deteriorating economy?

  • Perspectives podcast: Too good to be true?

    Market Perspective

    How is the economy faring? How can we experience both falling inflation and improved growth? And are we at the end of the interest rate cycle?

  • Economic crisis and resolution

    Market Perspective

    With elections in the US and UK on the horizon, plus the risk of recession, there are many reasons for investors to stay out of the market. But by waiting to board the train, do investors risk missing it altogether?

  • Minimsing the effect of inheritance tax

    Insights

    After spending a lifetime successfully building your wealth, inheritance tax (IHT) can cause a significant amount to be taken by the taxman. In this article we examine how IHT works, the tax rates charged and what steps families can take to reduce its impact.

  • Monthly Market Summary: November 2023

    Insights

    Global equities rebounded by 9.2% in November (USD terms), as did global government bonds by 3.0% (USD, hedged terms).

  • Finding a mortgage with complex income

    Insights

    Taking out a mortgage on the high street may be difficult if you have complex income, here’s how our specialist lenders can help you.

Back to top