Investment returns (before tax and fees) for the quarter ending 31 March 2022 are:
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The last quarter was all about the increase in uncertainty. Markets dislike when there is an increase in doubt. Uncertainties increased with the dreadful Russian invasion of Ukraine and with regard to the future level of interest rates. The outbreak of conflict only further inflamed inflation fears. Many central banks around the world (Japan excepted) raised their official overnight cash rate and inferred that further increases were likely. Talk of the unwind of policies that were implemented to counter the expected COVID impacts also spooked some market participants. All of this increased uncertainty led to falls in both share and bond prices (bond prices fell as interest rates rose) over the quarter.
What happens now very much depends on expectations with regards to the Ukraine situation and inflation. Central banks are expected to keep raising rates in an effort to control inflation. Inflation can have a nasty effect on the economy. The question then may become whether central banks have raised interest rates too far or too fast. Will this (raising of interest rates) lead to a slowdown in the economy, and by how much?
The International Monetary Fund (IMF) has downgraded its global growth forecast to 3.6% (from 4.4%) in response to the Ukraine situation and the lockdowns in China. The 2023 projection was lowered to 3.6%, from 3.8%. The IMF has also bumped up its inflation forecast for advanced economies to 5.7% and for emerging and developing countries to 8.7%.
As readers will be aware we have been cautious in recent times as we believed both share and bond prices may have been too high given the uncertainties that existed. However, we have and still remain cautiously invested and diversified. In this environment we held and continue to hold a higher than normal cash level. This cash will, and has been used as and when we see opportunities.
