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Global events causing financial markets shake-ups

So, what’s the best way to manage your portfolio during these uncertain times?

In February 2022, Russia did the unthinkable in modern-day history by launching a large-scale invasion of Ukraine, that nearly brought the global financial landscape to its knees. This geopolitical risk created panic in the markets of a possible World War III, thereby plunging global markets into uncharted territories.

As if this was not enough, the ripple effects of Covid-19 continued to bash global markets thus causing a see-saw type of short-term volatility. Compounded to that, spiking inflation pressures across many geographical regions added to the financial market woes producing an unanticipated performance for the period. Soaring inflation rates have been followed by countermeasures by monetary authorities such as rate hikes to dampen boiling economic activity persuaded by money supply growth, supply chain constraints, ballooning energy prices, and disruptions in agriculture.

Based on experience, this current environment is arguably the most challenging, relative to the dot.com and the 2008 global financial market crisis. The major difference is that most central banks must contend with rising inflation which hasn’t been seen in decades.

The decades-high inflation has only been exacerbated by the ongoing Russia-Ukraine war, which has severely unsettled global financial markets and caused commodity prices such as oil, gas and agricultural produce to soar. These adverse factors have materially affected short-term performance for most asset classes watched.

In response to inflation, most central banks have begun to sharply increase interest rates. Persistent rate hikes suppress economic activity by squeezing the pockets of consumers and slowing consumer spending, and as a result slow demand and inflation. The problem is that central banks are currently raising rates in an already weak economic environment and thus risk throwing the world into an economic recession and adversely affecting global financial markets.

On top of this, although the effects of Covid-19 are dissipating with most countries returning to normalcy, markets are still enduring the knock-on effect thus causing some short-term market swings. Supply chain constraints spearheaded by Covid-19 still pose a threat to earnings for most manufacturing companies.

Put all the above together and you have an extremely tough investing environment to navigate.

Whilst the effects of short-term volatilities cannot be overlooked, our advice during these trying times is to always have a long-term directional view which will cushion the investment in such market downturns. Adopting a conservative investment approach during these sticky times clouded by market uncertainties and being eagle-eyed on opportunities that spur growth, are probable avenues to pursue.

Notwithstanding the devastating effects of the Russia-Ukraine war on civilians and the economy, we are of the view that the war in Ukraine is ongoing and will continuously cause short-term market fluctuations, which thus calls for a pragmatic approach that is anchored on capital preservation and growth.

We foresee supply chain issues dominating in the near to medium term thus pushing inflation levels to record highs – as is the case in the US and the Eurozone area. This will further push most central banks to implement multiple rate hikes to contain the spiral in inflation, which, as mentioned above is likely to push the world into an economic recession.

Based on this view, a consistent investment approach that can skillfully alter asset allocations to protect assets under management is advisable. This new norm has shifted risk appetites to a “conservative-moderate’’ profile while being Argus-eyed for any upturn in the current economic cycle.

While no one can predict the future with precision, a consistent well-oiled investment approach managed by qualified personnel can shield a portfolio from unprecedented losses. Throughout history, we have experienced cyclical times like these, thus, our advice is to have a long-term view of your investment portfolio.

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Michael Haldane

Global & Local The Investment Experts

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