“At the time of writing, the FTSE Index is just 100 points shy of pre-COVID levels and will hopefully continue its steady momentum into 2022.” ¬– Fred Mahon, 5th January 2022
How wrong I was. Many words come to mind when describing 2022, but steady is not one of them!
2022 will be remembered as the year that Putin invaded Ukraine, inflation rocketed, the Queen died and UK politicians showed levels of incompetence and arrogance that appalled us at home and likely provided endless entertainment in Europe. Do not forget that all was not lost, football at last came home thanks to the Lionesses, Nato powers rallied to Ukraine’s aid and Britain came SECOND in the Eurovision Song Contest!
From a market perspective, risk assets endured three rotten quarters, before staging the beginnings of a recovery in the final three months of the year. Underlying the sell-off globally is the fact that the cost of capital for all businesses and individuals has stepped-up notably. From the US Government’s cost of borrowing more than doubling year-on-year, to UK mortgage rates hitting levels last seen in 2008/9, to investors climbing over each other to sell positions in COVID era darlings such as food delivery companies and Peloton, we have all been reminded that money (credit) does not grow on trees, no matter what Rishi used to tell us. In hindsight, it seems mind blowing that not long-ago billions of dollars was being poured into SPACs and that ’investors’ were paying the German Government to lend them money (negative yields). What a difference a year has made.
Amidst the wreckage of 2022 market losses, there are two positive points that I would like to make:
- The bubble has burst. I cannot tell you if late-summer 2022 was the bottom of this bear market, but early indicators are that the worst has been priced-in. Markets are gaining in confidence to look beyond the immediate gloom thanks to multiple indications that inflation has begun to recede globally, China at last abandoning their “zero COVID” lunacy and Ukraine continuing to defy Putin. It would take a significant bout of fresh bad news (possibly a policy error from the central banks?) for markets to break below the lows made last summer.
- Valuations are attractive. The widespread fall in equities was largely indiscriminate in 2022 and has left the shares of some exceptional businesses trading on remarkably low valuations. For those investors willing to be patient and brave, the market offers plenty of opportunities as we begin 2023. Businesses that begin this year with strong balance sheets and genuinely unique products stand to survive and thrive through the potentially difficult economic conditions that lie ahead, as weaker competitors fall by the wayside. It is these leading businesses that we have always looked to invest in and will continue to do so.
We wish you all a happy 2023 and lets us all hope for a better year for markets ahead.
The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.
Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.