Market commentary: Jan 2022

Portfolio returns

Share markets fell sharply in January, with the catalyst for investor angst not having been Omicron, but instead fears over rising interest rates, and the knock-on impact to share prices. Tech stocks have been at the epicentre of the sell-off as valuations, which have been elevated, are now under scrutiny. Client portfolio returns for the last six months can be summed up as negative for Australasian shares and flat for International shares. Unusually, fixed interest returns are in negative territory as bond values are driven down by the prospect of increasing interest rates (this will correct to positive in future years).

Concerns about high inflation

It is clear that the reopening of economies and pent-up demand fuelled by expansive fiscal and monetary policy (introducing money to the economy and low interest rates) are resulting in high inflation. Given this, central banks have signalled that they will reduce money supply and increase interest rates. This could lead to a major sell-off on share markets. Has this already begun, will it continue this year, and how far will markets fall? Nobody can tell. What we do know is that sell-offs are part of normal market behaviour, and our advice will be to stay invested. We are extra cautious, and our fund managers are adjusting their portfolios to be more resilient to inflationary pressures and higher interest rates.

What is the “Metaverse”?

The metaverse is seen by some as the fourth wave following mainframe computing, personal computing, and mobile computing. Using a headset, you will be able to access a virtual world where people create a digital representation (an avatar) of themselves and socialise with friends and colleagues. In the virtual space users could shop and build property to enrich their lives. It’s you and your avatar interacting in a digital environment. Will it succeed? Our global fund managers all hold companies like Facebook (now called Meta), Google, and Microsoft who think it will. They are spending billions on development. As always, exciting possibilities for investment and plenty for our fund managers to ponder.

Richard Grimes, Director and Financial Adviser