These past few months have undoubtedly been volatile in the investment markets and, unfortunately, have been reflected in your investment portfolios. During April, we saw concerns continue over the war in Ukraine, nervousness over global inflationary pressures, and fears over the wider economic impact of Covid outbreaks in China. This all culminated in the International Monetary Fund (IMF) cutting its global growth forecasts to 3.6% this year from 4.4% and to 3.6% from 3.8% for 2023.
In the UK, inflation continues, the FTSE 100 is doing better than a lot of other global markets, but other areas are still showing signs of struggle
Inflation shows no signs of slowing, fuelled by ever-increasing energy prices, which saw the energy price cap rise again in April. The Consumer Price Index rose to 7% in March, with expectations that 10% could be seen by the end of the year.
Not surprisingly, consumer confidence has deteriorated as the year has passed. To highlight this, The Office for National Statistics (ONS) reported that retail sales fell by 1.4% throughout March. Despite this, the FTSE 100 index rose by 0.4% during April and has increased by 2.2% since the start of the year. However, looking a bit deeper at the markets here in the UK, the FTSE 250 fell by 2.1% in April. Mid-caps have also fallen by 11.8% throughout 2022. This shows that the blue-chip index of the FTSE 100 has fared better than a lot of global markets, but underneath this, investment markets in the UK have struggled.
As mentioned, the IMF has cut its global growth forecasts, and this is reflected in its new forecasts for the UK. They have cut the expected growth here from 4.7% to 3.7% for this year and to 1.2% from 2.3% in 2023. The growth is being impacted by the waning of consumer spending, increasing interest rates and the impact of Brexit. The UK economy fell from 0.8% in January to just 0.1% in February.
Over in the US, the annualised rate of consumer price inflation hit a high
The economy had been expanding as 2021 drew to close, however in the first quarter of 2022 this began to reverse with an annualised rated reduction of 1.4%. As we have seen here in the UK, inflationary pressures are very much at the forefront of the economic news. In March, the annualised rate of consumer price inflation hit a 40-year high.
Showing that increasing energy prices are a global issue, the US saw a 32% increase, whilst in Germany, their energy prices rose by 83.8% year on year. Digging deeper into the German figure shows that their natural gas prices rocketed by 144.8%. During April, the Dow Jones Industrial Average Index in the US fell by 4.9%, whilst the German’s Dax Index saw a drop of 2.2%.
Initial growth figures for China look good but not against target
China saw a new lockdown measure come into effect, with concerns over a new Covid outbreak. Initial figures for China's first quarter growth look very good, with a 4.8% year-on-year rise. However, this fell well below their own government target of 5.5%. Over the course of last month, the Shanghai Composite Index declined by 6.3%.
What this means for you and your investments
The current economic climate and the impact this is having on your portfolios will undoubtedly create unease. At Hanover, our investment philosophy is always for the long term, and we can assure you that there is no need to panic over short-term losses. This was demonstrated as recently as 2020 when the pandemic saw an unprecedented downturn in the markets. These reverses have since been regained over the last year or so and have not negatively impacted our client’s investments.
As always, please do not hesitate to contact us if you would like to talk about your investment(s).
Who should you contact for more information?
Director Richard Brazier
Financial Adviser Amanda Beacon
Senior Consultant Graham Smithson