Counterpoint November 2022

Counterpoint November 2022

Winter is coming

Financial markets often follow standard patterns of behaviour, and we’re always looking out for any shifts in order to adjust portfolios

Recent history reminds us that the unexpected happens frequently, which can send financial markets in new directions. The global pandemic caused a sharp sell-off in share prices at the start of 2020, although they soon recovered. More recently, Russia’s invasion of Ukraine and the disruption to energy supplies has pushed up inflation to record levels. Central banks have hiked interest rates and government bond yields have risen.

Markets are also prone to throw a tantrum if they don’t like the look of something. When the UK’s new Prime Minister Liz Truss (who has recently resigned) and her Chancellor Kwasi Kwarteng announced a mini-budget of unfunded tax cuts, the pound collapsed to a record low against the US dollar, and 10-year gilt yields soared to above 4% for the first time in many years. The Bank of England had to step in to reassure investors, a new Chancellor has already reversed many of the measures and now Rishi Sunak is Prime Minister.

These events also remind us that markets tend to follow long-established patterns. Our job as investors is to keep a close eye on what’s happening throughout the world so that we can position investment portfolios accordingly. After having further reduced our exposure to eurozone and global equities while raising USD cash, we’re holding steady for now. Despite the recent market correction, valuations aren’t necessarily attractive yet. We’ll be looking for a decisive drop in inflation or a meaningful slowdown in economic activity before contemplating further shifts.

Read the full publication here.

Daniele Antonucci
Chief Economist & Macro Strategist