Quarterly investment outlook – Q3 2022

Paradigm shift: What it means for portfolios and businesses

We find ourselves in the midst of a once-in-a-decade paradigm shift for financial markets and the global economy.

The first six months of the year have seen the worst equity performance in nearly a century. Already, average portfolio performance is the worst in twenty years, on par with the 2008 global financial crisis.

Equities and bond returns have been largely correlated, both dropping in excess of 10%. With the exception of oil and commodities, no asset, not even gold, has registered gains since December.

Meanwhile, global economic performance is suffering as inflation which is accelerating at the fastest pace in nearly forty years is rapidly squeezing real consumer incomes. Central banks have been forced, for the first time in decades, to rapidly hike rates and force-stop money printing, a policy tool that has served as the ubiquitous economic and financial stabiliser for the better part of this century.

Read our full update on Paradigm shift

Economic outlook: The global economic slowdown

Volatility persists for the global economy, as inflation and rising rates have dented the post-pandemic recovery and continue to slow growth.

The next months are shaping up to be difficult and volatile. Economic and financial visibility continues to be virtually non-existent, a fact not lost on business leaders. Despite some easing in input prices, inflation is resilient and has been exacerbated by the war in Ukraine. As a result of persistently higher prices, wage pressures in developed markets have intensified, prompting central banks to tighten the supply of money.

It remains debatable whether headline GDP in most developed markets will fall enough in 2022 and 2023 to technically qualify as a “recession” (two consecutive quarters of negative growth). Nevertheless, the point is moot. Lower income households are already seeing higher energy prices and overall inflation squeezing their real incomes. Business and consumer surveys across the globe paint a picture of pessimism. As a result, we are seeing a significant reduction in expenditure, especially from marginal consumers.

At the same time, China is recovering from a two-month strict lockdown period, and leadership is gearing up to significantly increase economic stimulus. Despite the short- and medium-term positive boost this could give to global growth, the country’s macroeconomic picture is still volatile as it endeavours to manage the transition away from the world’s manufacturing hub and the fallout from the government crackdown on the Real Estate and Technology sectors. The confluence of material-related inflation and the lockdowns across numerous Chinese provinces have led many chief executives to identify supply chain turmoil as the greatest threat to their companies' growth and their countries' economies.

Read our full Economic outlook

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