Our monthly portfolio positioning commentary.
At the start of 2022, it was expected that inflation would ease as the
pandemic began to dissipate. However, with the war in Ukraine continuing and the prices of energy, metals, fertilisers and food rising, inflationary pressures have not eased. Inflation in the US alone has reached a 40 year high of 8.5%, with record numbers also projected for the UK and in Europe.
During March, concerns over the economic implications of the Russian invasion of Ukraine has weighed on both equities and bonds. Russia is a major energy and commodity producer with the conflict pushing prices markedly higher, which has exacerbated the surge in inflation. Furthermore, the global supply chain remains disrupted from the impact of the pandemic and remains a risk to global growth, especially in China where further lockdowns have been enacted.
The Omicron variant proved less disruptive than expected, and meant energy and travel/leisure equities recovered in January. However, concern around inflation, supply chain bottlenecks, tightening labour markets and rising commodity prices meant that markets remained volatile.
Following strong returns in November, equity markets experienced a downturn during December. News of the spread of the Omicron variant and persistent inflation continue to concern investors. Inflation has become more persistent than originally expected, with supply-chain bottlenecks, rising energy and raw material costs, all contributing.
The world continues to be on a path towards post-pandemic normalisation.
However, it is clear that the economic disruption has not yet ended. The new Omicron Covid variant, labour shortages, supply-chain disruptions, and inflation, could impact corporate profit margins.
The global economy continues its recovery from the pandemic. However, concerns around inflation have resurfaced, leading to equity markets giving back some of the gains they made in September.
Inflation has risen beyond most central banks stated targets, leading to a number of them signalling that interest rate rises are getting closer.