Speculation and Market volatility have ramped up dramatically over the past month, and for good reason. As mentioned in our previous articles the sustained optimism of investors in recent times seemed endless, ignorant of many challenges facing the real economy.
In the next few months and into the second half of 2022, we believe there will be a meaningful change in the demeanour of financial markets, consumers, investors and corporates alike. While a portion of this has already occurred over the past few weeks, there is more to come.
The core reasons for dissipating optimism are rising rates and the diminution in monies built up during the era of COVID induced austerity. We also see potential challenges coming from the increasing likelihood of a new (local) government that will focus on government debt and building a fiscal war chest ready for re-election in three years’ time.
This combined with continued rate rises in the US, of which we anticipate another 0.5% increase in June and 0.5% more between July to September (pending how markets react), we can see a strong case for how confidence and optimism will continue to dampen.
In light of this outlook, we are looking to make some meaningful changes to our portfolio construction recommendations for our clients. The days of ‘cheap’ returns are likely to pass us by for a period of time and we want our clients to have their own fiscal war chest to put to work as markets experience volatility and present new buying opportunities of growth assets.
