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High inflation data, tighter monetary policy and the Russian invasion of Ukraine created significant volatility within financial markets in the first quarter of 2022. It is, however, heartening to compare data for major indices for the month of March with the data for the quarter. The key message is that many major indices ended the month of March in positive territory following significant recovery over the month as presented in the table below. All data is in Sterling terms and on a total return basis. Equity market recovery in March was also reflected in the performance of our model portfolios.

Notable returns were 4.70% for the MSCI World and 5.65% for the S&P 500. US markets have been more insulated from the impact of the conflict in Ukraine because the US has its own oil and gas supplies and because it is not nearby geographically. It is also noticeable that the FTSE 100 has seen positive gains of 2.88% over the quarter and 1.42% in the last month.  The index has an 11% weighting to energy stocks and 18% in financials. These sectors tend to be positively influenced by rising energy prices and higher interest rates respectively. The emerging markets index data presented in the table reflects a general “risk off” environment. China was an outlier in March, with the CSI China Securities 300 index down -6.55%. This was due to new, hard lockdowns in Shanghai and Shenzhen to control a major COVID-19 outbreak. The lockdowns could create further short term disruption to supply chains and add to inflationary pressures. On the positive side we note the Chinese government’s softer stance on monetary policy and goal to achieve 5.5% GDP growth this year. As a reminder we reduced exposure to Asia Pacific and China within our Cautious and Cautious-to-Balanced portfolios in October last year. Within our other model portfolios we continue to invest in two funds within the Asia Pacific sector. The first is a total return strategy with 24% exposure to mainland China and Hong Kong and the option to use derivatives with the goal of offsetting some market downside. The second is an income strategy with a significant underweight to China with just under 2% exposure to mainland China and 9% exposure to Hong Kong. The fund is slanted towards other developed markets in the region including Australia, Taiwan, South Korea and Singapore.



The Global Price Index of All Commodities is published quarterly by the International Monetary Fund and aims to track the price direction of major primary commodities such as energy, edibles, metals and agricultural prices including fertiliser and cotton. Giving some context to the scale of inflation, the index is up over 50% since its pandemic low in the second quarter of 2020. Bottlenecks and supply constraints due to the pandemic created the first wave of inflation. However, it is Russia’s invasion of Ukraine which is now causing price pressure for many crucial commodities. Russia supplies 10% of the world’s oil and is a major exporter of metals like palladium and nickel. And Russia and Ukraine together account for approximately a quarter of the world’s wheat exports. The dislocations and sanctions created by this tragic conflict are therefore likely to continue to feed through into inflation data for some time yet.

The US unemployment rate is now just 3.6% highlighting the fast recovery in jobs and opportunities during re-opening from the pandemic. After the 2008 recession it took over seven years for the unemployment rate to recover to pre-recession levels. On the other side of the coin, wage growth is up to around 6% year on year, which is fuelling inflation. And with inflation well above the Fed’s target, further incremental interest rate increases are likely to follow the interest rate increase to 0.50% in March to try and keep a lid on prices increases. The Federal Reserve will also begin to reduce the size of its balance sheet starting in May in a sign an era of extraordinary monetary policy and quantitative easing is now being wound down.

UK CPI inflation was 7% year-on-year in March, the highest rate in 30 years. In his Spring statement, the Chancellor announced a range of fiscal policies equivalent to 0.4% of GDP aimed at countering increases in the cost of living. One new policy is that the primary threshold for Class 1 national insurance contributions (NICs) will increase from £9,880 a year to £12,570 a year from 6 July 2022, bringing it in line with the frozen personal allowance. There will also be a temporary 12-month cut to duty on petrol and diesel of 5p per litre from 23 March 2022. Whether these policies will be effective remains to be seen.

We continue to pursue a strategy focused on geographical diversification within our model portfolios with the aim of spreading economic, geopolitical and market risks. We will keep you updated with any changes to our investment strategy or fund selections.

This article is for information purposes only. It does not constitute advice and is not a recommendation to invest. The value of investments may go down as well as up and you may not get back your original investment. Past performance is not a guide to the future.

The information in this article is correct as at 13 April 2022

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