Insights

The questions we have been getting over this period have been concerns over what this might mean for portfolios, and should we be investing or ‘dashing to cash’. I always refer to a graph such as this and remind them that we should be focusing on and investing for the long term and not the short term, see below graph charting some of the world’s major indexes over a 20-year period.

But it is important to know what is going on and what drivers are affecting the markets so that you can better understand why the markets are moving in the short term. It is easy to be confident and transparent in times of strong market movements, but we believe it is even more important to be vocal when the markets are not going to plan.

Markets have gone crazy for the last 120 years but those who take no notice of short-term market movements and stay the course end up the most successful - nonetheless there is nothing wrong with understanding why we have seen markets move like they have over the last 30 days, and we can address them one by one:

• Inflation pressures - covered within our Q4 commentary, global and local markets are unsure of how long this inflation spike will last. What Wall Street type investors love more than return, is certainty. Inflation is not necessarily a concern, as discussed in the Q4 commentary, it can be a good thing, but prolonged inflation is a major concern.

• Covid -19 recovery - one of the most likely causes for the disparity between the FTSE and global markets is our recovery to Omricon. We have managed to stage a recovery and roll out boosters faster than much of the planet - this means that local markets will be predicting economic recovery and market stimulation, now that restrictions are ending - this was evident through market opening this morning. On the other hand, the US (and globally through the WHO), is still seeing Omricon rip through economies causing lockdowns, supply shortages and economic pullback. If you remember, this was the opposite post the original 2020 March dip, when the UK lagged behind global markets - meaning the FTSE is simply recovering from their previous lows as well and equalising with global markets. I expect to see global markets recover once they get through the worst of this recent Covid Spike, as long as they get a handle on inflation pressures but that's not for us to worry about or predict!

• US Interest Rates - Lastly, the largest capital market, the US, is "expecting" to see more severe interest rate hikes in the near term that will discourage economic spending and increase the cost of borrowing for business - this is a response to point 1 but in turn, will have a short term negative effect and prove a shock to the system for a market so used to regular stimulus support from its government.

All in all, these types of corrections & dips are expected and can prove healthy for markets during uncertain times to ground them back to more realistic valuations in the long term. Still too soon to say, however.