To be honest, with a few days to Christmas, you probably have a hundred things to do other than read our thoughts on the financial markets. Like me, you’re undoubtedly scrambling around for last minute gift ideas and garnering enthusiasm for this annual bank account emptier!
However, the magic remains. This is our chance to forget another turbulent year with the waves of bad news and even switch off from Auntie’s favourite harbinger of doom – the BBC! Feels a bit like we’re clinging to a lifeboat, but in reality, things aren’t that bad - although the news from Adelaide has darkened my mood. Also, what on earth was that all about last Sunday? Our man was clearly the better driver only to be beaten by a not so subtle, made for TV rule change. I often try and imagine if the roles were reversed, how would we feel. If Lewis had won in such a manner would we have celebrated? I think not.
Anyway, ignoring the hysterics of said BBC, the media in general (special mention to the Daily Mail which never ceases to be comprehensively witless!) and of course the unnerving power of social media, the outlook isn’t all bad. We have, despite everything, just seen a strong year of investment performance.
I wrote an in-house article back in February or March 2020 focusing on the situation at that time…
“Covid-19 will be a tale of historical significance. Undoubtedly the world will recover, but the alarm bells have sounded a warning. We either take the chance …and globally co-operate, or we’ll end up in a pickle. Sitting on my own has probably given me too much time to think but in a funny kind of way I suspect we’re almost blessed to have this pandemic. Don’t get me wrong, it’s awful and there will be many tragic and humbling stories, but from a universal perspective, this could have been a monster. Instead, humanity has been handed a heads up. That’s why we’ll force a recovery and hopefully grasp this olive branch handed to us.”
Simply, we may have dodged the bullet. Through the cooperation of global scientists, we’re largely unscathed. I had Covid a few weeks back and despite being under the weather for a couple of days, my abiding take away was to be thankful for vaccinations. Without this deterrent the pandemic could have run out of control. That’s a proper victory. Of course, too many sacrifices and too much sadness along the way, but overall, we’re winning the battle – and we should acknowledge this fact.
2022 - ups, downs and opportunities
Meanwhile there will always be something to worry financial markets. The current flak centres around inflation, geo-political issues, fragile China, even more fragile Boris, tapering etc, etc. There’s never been a time where there were simply no clouds on the horizon, but our policy remains the same - stick to the core themes and identify opportunities when they come along. Undoubtedly 2022 will be erratic, but in general we should be optimistic. After two years of a global confrontation, we’re still here and still innovating, which means there will be opportunities for investments.
It's tricky to guess what Putin plans for the Ukraine or what Xi intends for Taiwan, but I’d imagine the threatened intentions are a reminder rather than a probability. Each is proud, but Putin needs to sell energy and Xi has the Winter Olympics and Covid to control. The greatest problem is inflation and this will need careful monitoring. Supply chain bottlenecks, labour shortages, wage inflation are daily reminders that the hitherto benign landscape is wavering in the face of a gathering storm. The catch-22 of keeping liquidity flowing and trying to control inflation is a major headache for central banks and this will be a much-discussed topic next year, a catch-2022 perhaps? On the positive side, we’re part of a world emerging from a two-year hiatus. Logically, rising inflation would seem a natural legacy of such an interruption but not beyond repair. Hopefully we can address most of these issues, but market volatility would seem inevitable.
Finally, don’t lose sight of value. The well-intended have focused our minds on how best we nurture the world for future generations. No-one in their right mind would disagree with the principle that something needs to be done and thereby there’s a huge political shift to say and do the right thing. However, politics is always way ahead of practicalities and the lack of capital investment by, or in the energy and mining industry will become apparent in years to come. We all want what’s best, but the rush for the green new world has also succeeded in creating vulnerability. You can’t just flick a green switch and expect total transition. The change to a cleaner world will be gradual and over many decades. In the meantime, don’t lose sight of the role that traditional mining and energy companies will play in the current and medium term.
With all best wishes for Christmas and the New Year.
Toby Peatfield, Advisory Investment Team
The Weekly Update will be back in the New Year, on Monday 10th January
Our investment teams have a written a number of articles on the environmental changes and challenges; the latest, from Sam Dovey in Discretionary Investment Management, explains the concept of planetary boundaries.
Read more here.