As we move into the year markets have got off to a strong start, however, for the next six months at least, I believe they will continue to be volatile. Inflation, Energy issues, the War in Ukraine, Global food challenges, and Covid, are all still very much with us and investment markets always hate uncertainty.
China’s recent decision to abandon its zero Covid policy very abruptly, whilst hopefully rebooting its Economy this year is currently causing some further disruption in supply through absenteeism in factories, due to the virus.
There are mixed views on the extent Economies & Individuals are going to be challenged by the rising interest rates necessary to combat inflation. To date, they appear reasonably robust, demand is steady and, despite the tech industry layoffs, there are still a lot of unfilled job vacancies across Western Economies. However, during the year, the ongoing and largest rises in interest rates in a decade will undoubtedly have an impact.
The switch to renewable energy is primarily challenged by the very long time it takes to gain permission for new projects and the high demand for certain raw materials it creates. The traditional energy industry remains caught in the crossfire between ‘those who see it as critical to increase supply in the short-term, at least’ and ‘those who are adamant that we cannot afford to on climate grounds’. The mild winter and heroic efforts to replace Russian supply in Europe has worked in the short-term. However, it will remain a major challenge for Europe to obtain affordable energy, for its industrial base for the foreseeable future.
We are seeing growing pressure to increase taxation to cover Government deficits, social expenditure and to reduce inequality, particularly in the UK. As I write this, the largest strikes in a generation are taking place. Consequently, reviewing our clients tax positions (income & inheritance) remains high on our agenda, in particular for those for whom minimising taxation is important when passing on assets.
The blockchain & cryptocurrency market continues to be in complete turmoil. It is estimated that 1 in 10 people in the UK put some funds into this arena. It remains an area we have NOT participated in for clients, apart from a very small exposure to blockchain technology in our global portfolio. Our view remains that the technology is interesting and may have real value, (one of Switzerland’s largest financial institutions is now using the blockchain to settle market trades more quickly and at lower cost), but the risk to individuals of engaging in this largely unregulated industry leave it uninvestable for all but those who are looking for an outright gamble.
We now believe that there are grounds for optimism in markets, as the consequences of these issues become clearer.
Our approach to this is to continue to take a long-term view, be clear about what is short-term noise and what really matters in respect of your portfolio. The key as we see it is to continue look for the highest quality investments we can find, seek to control the cost of portfolios using Exchange Traded Funds (ETFs), and avoid trading unnecessarily.