Peregrine Wealth Limited recently hosted a live presentation that shed light on our global economic outlookand the themes currently influencing financial market performance.
The event featured insights from Peregrine Wealth’s Chief Investment Officer, George Herman, and Investment Strategist and Portfolio Manager Yolanda Naudé, whose discussion is summarised below.
SUPPLY AND DEMAND DYNAMICS
The global economy is built around the tension between demand and supply. Currently, global demand is muted, as evidenced by economic indicators such as retail and auto sales and consumer confidence surveys, all of which suggest a growing reluctance from consumers to spend money.
The reason behind this is clear – with inflation in key economies like the UK, Eurozone, and the US soaring, central banks have been compelled to respond with aggressive hikes in interest rates. This has dragged consumer confidence down to levels lower than during the Covid-19 pandemic.
The supply side is similarly challenged, with global manufacturing Purchasing Managers Indices (PMI) figures dipping below the key 50 level, indicating a contraction.
There are some economic bright spots however – the labour market remains robust, services PMIs remain in expansionary territory and emerging markets are further travelled along the inflation cycle, and thus have begun cutting rates, which has naturally supported economic growth in these regions.
GEOPOLITICAL TENSIONS
Geopolitics is a consistent source of angst for financial markets, and disputes of varying severity have the potential to impact asset prices and economic growth.
We are 20 months into the Ukraine war with little sign of a resolution, and this is now accompanied by the escalating crisis between Israel and Palestine, which threatens to involve neighbouring countries. In addition to the obvious humanitarian concerns, both have disrupted global energy markets and will likely continue to do so.
In spite of forthcoming bilateral talks between China and the US, both nations remain opposed, both ideologically and strategically, and an emboldened China’s approach to the question of Taiwan’s sovereignty does little to improve relations. An increasingly multi-polar world reinforces the deglobalisation trend that emerged post-COVID which could result in elevated volatility in markets.
LOOKING AHEAD
There is typically a delay of at least 12 months before the effect of interest rate rises fully takes hold in an economy, so, despite rates recently plateauing, there is likely to be further economic pain felt in the coming months.
In addition to the various economic concerns, investors will have to contend with a series of elections in 2024, not least the US Presidential elections, which will likely exacerbate geopolitical risks.
Despite these challenges, there are reasons for optimism. Inflation is expected to decelerate for most major developed market economies, albeit settling above the 2% target, and global economic growth will reach its trough in 2024 before reaccelerating thereafter.
It is important to note this new economic regime is, in fact, not all that new, but rather a return to the ‘old normal’, where inflation is structurally higher, money has a price, returns on bonds outstrip inflation, and economic cycles are shorter.
In conclusion, there are various risks to investment performance and wealth preservation in the year ahead. The first tenet of the Peregrine Wealth investment philosophy is that the future is uncertain – investment portfolios are therefore positioned to protect our clients’ wealth in a variety of economic scenarios. If you’re looking for insight on how to prepare for both darker days and brighter spells, contact the Peregrine Wealth team at: https://www.peregrine.gg/contact-us/