In this edition

Asset markets are facing rising political risk, higher inflation, slowing growth and tightening monetary policy, but opportunities are emerging and diversification is key.

We also explore the impact the Russia Ukraine conflict has had on Europe’s energy shortage crisis making the pursuit of climate targets all the more difficult. We share our insights on the energy trilemma and potential solutions.

Investor Insights Summer 2022

Hear from our experts

  • 26 Jul
  • 15 mins

Our in-house experts share our views on the future of the economy and the themes that matter for investors.

Watch here.

A world of worries: global economy

So far, 2022 has proved a challenging year for markets and for the global economy. Asset markets have faced rising political risk, higher inflation, slowing growth and tightening monetary policy. Against this backdrop, both equities and bonds have suffered. In this report we consider the risks to assets, and the opportunities emerging for investors.

Asset markets have faced stark declines so far in 2022. At the midway point of the year, the end of June, the MSCI World Global Equity Index was down more than -20% in sterling terms since the start of the year. The main developed market government bond indices also faced falls of -10-15%. Behind these declines lie a number of investor worries.

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Investment implications: challenges and opportunities

Undoubtedly, there are a number of significant challenges facing investors and the global economy. Chief amongst these are the risk of higher interest rates and the risk of lower growth.

However, markets have now priced in significant interest rate rises. This decreases the scope for more than expected tightening, and increases the scope for rates to rise by less than the market has anticipated.

As ever, we continue to focus on the long-term prospects of businesses, favouring quality companies at attractive prices. The dramatic price action we have seen in 2022 presents an opportunity for the selective investor to identify good businesses that have been brought down in value with the broader market.

Russia Ukraine conflict: the impact on energy

The conflict has compounded Europe’s energy shortage crisis and made the pursuit of climate targets even more difficult. The Intergovernmental Panel on Climate Change (IPCC) is clear that an immediate reduction in fossil fuel production and use is needed to prevent irreversible damage. Global emissions are back to pre-pandemic levels, so action is critical.

Since the invasion, western countries have been distancing themselves from Russian fossil fuels and whilst there is hope this will accelerate the transition to cleaner alternatives, it isn’t an easy switch. For countries with a traditionally large dependence on Russian gas, transitioning is a major issue as it takes both time and money. Affected countries, such as the UK, have turned to coal production as a short-term solution to protect energy supplies, temporarily derailing the energy transition.

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Important information

Any research in this document has been procured and may have been acted upon by Close Brothers Asset Management for its own purposes. The information is being made available to you only incidentally. The views expressed herein do not constitute investment, taxation or any other advice and are subject to change. They do not necessarily reflect the views of any company in the Close Brothers Group or any part thereof and no assurances are made as to their accuracy. Investments may not be suitable for everyone. Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Unless otherwise indicated, all information and opinions expressed in this document are those of Close Brothers Asset Management and are correct as of July 2022.

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