An exceptional, if not unique, correlation of factors is buffeting financial markets at the present, but we have enough experience to know how to respond and deal with these challenges.
While most of the globe is emerging and recovering from the worst of the Covid pandemic, ironically, China has been hit by a resurgence of infections and has responded in its customary authoritarian manner. China’s economic and financial centre, Shanghai, has effectively been locked down in what constitutes the most extreme measures imposed on a major Chinese city. While the omniscience of the lockdown may prove effective in stabilising public health and eradicating this spike in Covid infections, its economic impact on the Chinese and global economy is alarming. Supply chain backlogs, silicon chip shortages and shipping blockages are just a few of the knock-on effects of the Shanghai lockdown.
As the world’s major consumer of resources, the slow-down in the Chinese economy will also dampen the resources super-cycle which has shielded our South African economy over the past couple of years.
This interruption of the global recovery from the economic fall-out of the Covid pandemic comes at a time when advanced economies are grappling with exceptionally high inflation rates. This after record-low interest rates have been the norm for almost a decade. In other words, we have the ingredients for a bout of stagflation if central banks, treasuries and the major developed economies mismanage this period of recovery.
As if this was not enough to contend with, the Russian invasion of Ukraine has sent shock-waves through the energy supply chains in Europe and beyond, while simultaneously threatening to curtail supplies of fertiliser, grain and cooking oil. The impact of these latter factors will be felt most in developing countries and Africa in particular. This is yet another reason why South Africa must protect, grow and sustain its farming community to ensure food security now and for future generations.
Perversely, the energy crisis propelled by the Russian invasion of Ukraine has also placed a huge question mark over the roll-out of global sustainable/renewable energy policy even in the light of the commitments made to keep global warming below 1,5˚c made at the climate change CoP26 held in Glasgow in November last year.
Little surprise then, that financial markets have recently come off significantly, with bloated tech stocks being hardest hit in the re-rating.
Yet, with all this said and the myriad challenges confronting global markets, a financial correction is neither unusual nor unhealthy. Despite the current market and currency buffeting, the challenge is to remain invested in good quality portfolios that are soundly constructed and managed for the long-term wealth protection and income of informed investors.
This is exactly what our asset managers achieve by sticking to their disciplines, no matter how strong the headwinds we face.