Category: news

Investment market update: March 2022

Throughout March, the war in Ukraine continued to dominate headlines and affect investment portfolios around the world.

Many companies, from well-known businesses like L’Oréal and Coca-Cola to smaller firms, have withdrawn operations from Russia, including online sales. Others, such as Unilever and Nestlé, have halted investment in the country but are continuing to provide some goods.

This has led to some volatility within the markets, although they did rally towards the end of the month.

Sanctions on Russia mean the price of some goods have boomed globally. Aluminium reached a record high, and the price of fuel also climbed. As both Russia and Ukraine are major exporters of wheat and corn, the conflict may affect food prices too.

The ongoing uncertainty has played a role in the higher levels of inflation many countries are experiencing. The after-effects of the pandemic and the supply issues it caused are also partly to blame for inflation rates.

It’s natural to be worried about your plans during times of uncertainty. What’s important is that you keep your long-term plans in mind and don’t make knee-jerk decisions based on headlines. If you have any questions about your investment strategy or wider financial plan, please contact us.

UK

Chancellor Rishi Sunak delivered the spring statement on Wednesday 23 March.

He opened with subdued growth forecasts from the Office for Budget Responsibility (OBR). The organisation now expects GDP to rise by 3.8% in 2022, down from the 6% forecast in October last year.

Among the measures Sunak announced were a fuel duty cut of 5p a litre as prices at petrol stations soared, and a cut in VAT for home energy efficiency installations.

While the government will continue with its plans to raise National Insurance (NI) in the 2022/23 tax year, the threshold that workers will start paying NI will increase.

The National Insurance Primary Threshold and Lower Profits Limit will rise from £9,880 to £12,570 from July 2022. Sunak also suggested that the basic rate of Income Tax could be cut in 2024, but only if certain conditions were met.

The statement followed the news from the Office for National Statistics (ONS) that in the 12 months to February 2022, inflation reached a 30-year high of 6.2%. The rate is now expected to peak at around 8%, but the Bank of England (BoE) hasn’t ruled out the possibility of double-digit inflation.

In a bid to slow the pace of inflation, the BoE also announced a base interest rate rise. It’s the third time the BoE has increased the rate since December 2021, and it now stands at 0.75%.

Inflation rising means that, in real terms, basic pay fell by 1% in the year to February – the steepest decline since 2014 – according to the ONS.

One of the biggest challenges families are facing is the rising cost of living, particularly energy prices. British wholesale gas for April delivery has increased by 20%. If prices remain high it could mean that household energy bills, which will be rising on average by 54% in April, will rise even further following the next review in October.

It’s an issue that is also affecting businesses. The Confederation of British Industry (CBI) has urged the government to offer support as energy bills rise. A CBI survey found that this pressure could lead to rising prices. 82% of British manufacturers expect to increase prices in the coming months.

As consumers are forced to cut back, some businesses are likely to find they’re affected by a reduction in discretionary spending.

Another news story that caught the attention of headlines was P&O Ferries’ decision to dismiss 800 members of staff and replace them with agency workers, who would earn less than the UK minimum wage. The decision caused outrage, prompted safety concerns, and led to suggestions that it may have been illegal.

Europe

Much like the UK, European economies are struggling with inflation and rising energy costs.

The European Central Bank (ECB) has raised its inflation forecast for 2022 to 5.8% compared to its earlier prediction of 3.2%. Again, energy prices are having a significant effect as costs increased by more than 30%.

Christine Lagarde, the president of the ECB, said the war in Ukraine “will have a material impact on economic activity through higher energy and commodity prices, the disruption of international commerce, and weaker confidence”.

However, unlike the BoE, the ECB elected to hold its interest rate at 0%.

The war in Ukraine has affected the outlook of Europe’s largest economy, Germany. A report from the Ifo research institute reported that business confidence in the economy has “collapsed” since the start of the conflict due to energy and supply chain challenges.

An agreed partnership between the European Commission and the US to reduce Europe’s reliance on Russian energy could relieve some of the pressure later this year. The US will aim to deliver larger shipments of liquefied natural gas to cut the European Union’s dependency on Russian Gas by two-thirds this year and end it before 2030.

After limiting activity for a month, the Moscow stock exchange reopened on Monday 28 March. Unsurprisingly, stocks fell but measures were put in place to prevent a sharp sell-off, including banning foreigners from selling Russian shares.

US

Inflation in the US increased to 7.9% in the 12 months to February 2022 – a 40-year high – according to the Labor Department.

The rising cost of living is having a knock-on effect on consumer confidence. A barometer from the University of Michigan found falling incomes in real terms means consumer sentiment has fallen to an 11-year low.

Despite the challenges, employment statistics indicate that businesses remain confident. The unemployment rate fell to 3.8% after firms took on 678,000 workers, far higher than the 400,000 expected, according to the Bureau of Labor Statistics.

US technology companies Alphabet (Google) and Meta (Facebook) are facing an antitrust investigation launched by the EU and UK. The two firms are accused of colluding to carve up the online advertising market between them. The deal between the two firms is already under investigation in the US. If found to be illegal, the deal, called “Jedi Blue”, could result in hefty fines of up to 10% of their global turnover.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

3 interesting pieces of data that show why you shouldn’t panic during market volatility

Over the last two years, investors have experienced a lot of volatility. If you’ve been tempted to change long-term plans, data can highlight why you shouldn’t panic.

At the start of the Covid-19 pandemic, markets fell sharply, and investors continued to experience volatility as the situation and restrictions changed. Just as things were slowly getting back to “normal”, tensions with Russia began to rise and stock markets reacted strongly when Russia invaded Ukraine in February.

Seeing the value of your investments fall can be nerve-racking, so much so that you may be tempted to make withdrawals or changes to your portfolio.

While there are times when it may be appropriate to change your investments, changes should reflect your personal circumstances. They shouldn’t be a knee-jerk reaction to periods of volatility.

Tuning out the noise and looking at long-term investment trends can be easier said than done. So, these three pieces of data can help you see why, in most cases, sticking to your investment strategy is the best option.

1. Stock market risk falls the longer you invest

All investments carry some level of risk, and the value of your investments can fall.

However, over the long term, the ups and downs of investment markets can smooth out. This means that the longer you invest, the less risk there is that you will lose money when you look at the long-term outcomes. This is why you should invest for a minimum of five years.

The below graph shows how the risk of losing money overall falls when you invest for a longer period. This compares to holding cash, which can lose value in real terms as the cost of living rises, which interest rates are unlikely to keep up with.

Source: Schroders

So, while you may think about withdrawing your money amid volatility, leaving your money invested could reduce the risk of your portfolio falling in value.

Your investments should reflect your risk profile, which considers several factors, such as your goals and capacity for loss.

2. Markets have historically bounced back

When you’re experiencing volatility, it can seem like a one-off event. Yet, if you look back over the years, you’ll see there are often events that can seem like reasons not to invest or to change your investment strategy.

In the last decade alone, there’s been the Brexit vote, Trump’s inauguration, trade wars, and protests in Hong Kong.

During these periods, your investments may have fallen in value. Yet, if you review the long-term trend, markets have historically bounced back and gone on to deliver returns.

The graph below highlights how negative world events can cause stock markets to fall.

Source: Bloomberg, Humans Under Management. Returns are based on the MSCI World price index from 1988 and do not include dividends. For illustrative purposes only.

While there have been sharp falls, the general trend of stock markets has been upwards over the last 30 years.

Data from Schroders shows that stock market corrections, where there is a 10% drop, are not as rare as you might think either. The US market has fallen by at least 10% in 28 of the last 50 calendar years. Yet even with these dips, the market has returned 11% a year over the last 50 years on average.

3. Trying to time the market could cost you money

As stocks rise and fall, it can be tempting to try and time the market.

Everyone wants to buy stocks at a low price and sell them when the value is high. But it’s incredibly difficult to consistently predict how the markets will change.

Even if you miss out on just a handful of the best performing days of the market, you could lose out. The below table shows the returns from an investment of £1,000 between 1986 and 2021 based on leaving your money invested and missing some of the best days.

Source: Schroders

If you had invested in the FTSE 250, missing just the 30 best days over these 35 years would cost you almost £33,000.

The findings highlight why “it’s time in the market, not timing the market” is a common saying when investing. Staying the course and having faith in your long-term investment strategy makes sense for most investors.

Creating an investment strategy that’s right for you

The above graphs and table highlight why you shouldn’t panic when investment markets experience volatility.

That being said, it’s important to remember that investment performance cannot be guaranteed, and that past performance is not a reliable indicator of future performance.

Building an investment portfolio that reflects your goals and takes an appropriate amount of risk is crucial. If you’d like to talk about investing, whether you have concerns about market volatility or want to start a portfolio, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.