This year has certainly flown by and not without incident – the war in Ukraine, inflation and cost-of- living impacts, not to mention the ‘Liz Truss Effect’ on the markets. We are starting to see some green shoots in markets and alternative solutions, where historic plans have fallen. There has been some recovery in the FTSE 100 following the mini budget but there are many variables to consider over the coming year. I enclose a market summary to keep you up to date with our investment team, Bordier’s opinion and an article from John Merrifield on our new sponsorship of a local charity.
Investment commentary November 2022
After a strong October, developed market equities continued to rally in November, rising a further 7%. The main catalyst was the greater than expected fall in US inflation (down from over 8% to 7.7%), which led the market to believe that inflation in the US may have peaked and that the US Federal Reserve may be able to slow, and potentially end, the cycle of rate rises earlier than anticipated. Evidence continues to suggest that supply chain disruption globally is alleviating. Within the US, falling prices in areas such as goods and autos were key drivers in this fall in inflation although the picture does remain mixed; inflation in areas such as services remains more stubborn.
In contrast to the US, inflation numbers coming out of the eurozone and UK hit new highs as rising food and energy prices continued to impact. Economic data in both regions improved slightly from very depressed levels. However, the outlook remains weak. In the UK, the Office for Budget Responsibility (OBR) issued forecasts for a 1.5% decline in GDP for next year and for a 7% fall in real (i.e. relative to inflation) incomes. There was brighter news in terms of the energy crisis in Europe, where a combination of mild weather and good progress in securing new and alternative supplies of gas, have led to storage levels for the winter being almost fully replenished.
Emerging market equities rallied even more strongly than developed indices in November, rising close to 15%. Sentiment was buoyed by a modest relaxation in Covid restrictions in China and the anticipation of potential further loosening of restrictions. Economic data in China was relatively weak, pointing to a continued economic slowdown that has prompted authorities to ease policy and provide some targeted support measures, which has also been well received by markets.
November saw further 75 basis point rate hikes in the UK and US, taking rates to 3% and 4% respectively. Despite this, the less hawkish sentiment that perpetuated over the month drove global bonds up nearly 5%.
The recent recovery of sterling has continued as a level of calm has returned to UK politics and financial markets.
All strategies continue to remain towards the upper end of their corresponding Dynamic Planner risk profile. Equities are our preferred asset class and we are maintaining a full exposure across all strategies. Our expectation of modest but positive global economic growth over the next two to three years, the resilience to-date of corporate earnings and undemanding valuations, provide a supportive background for risk assets in our view.
Our equity exposure is targeted to areas and sectors that should provide superior levels of growth and to areas that should prove resilient to any periods of poor market sentiment. This points us towards the US and Asia, and to sectors such as global infrastructure and renewable energy.
In addition to equities, attractive opportunities have also appeared in both government and corporate bonds and, after a tumultuous period of returns so far this year, we expect a more ‘normal’ return profile from fixed interest assets going forward.
As ever, we remain very mindful of downside risks and are retaining exposure to low risk, uncorrelated strategies in the alternatives space that have provided excellent diversification benefits so far this year.
Feed up, warm up
We are delighted to announce that Richmond House Wealth Management has become a corporate partner for this local Hertfordshire charity. We have supported them in previous years by way of donations at Christmas and have seen the great work they do for those in need, particularly in Stevenage and Hitchin.
I first met Shane Cole (CEO of Feed up Warm up) three years ago and became inspired by his determination to help others. It was a cold winter in 2018 when Shane Cole founded Feed Up Warm Up, driven by personal knowledge of how homelessness feels. When Shane was 17 and had just left foster care, he found himself on the streets over Christmas.
Using this experience, and his background in catering, he rallied the community to open a drop-in centre for Hitchin’s homeless. Five months later, he was asked to open a second much-needed centre in Stevenage.
Today they operate a drop-in centre once a week at Stevenage football stadium and at Our Lady Immaculate Church in Hitchin. Not only can the guests get a cooked meal and warm clothing, but also someone to talk to, sing a song or get a haircut. This really does make a difference to those affected; unfortunately, the numbers are on the increase given the current economic situation.
I hope that we can help this charity grow over the next few years and achieve their aim of opening a 24/7 drop-in centre. In 2023, we also aim to help them with volunteering days as well as fund raising.
Author: John Merrifield, Chartered Financial Planner