Quarterly market update
Q2 2022: Markets navigate choppy waters
Investment highlights from 1st April to 30th June 2022
Published: July 2022
At a glance
- Inflation is staying high, interest rates are rising and economic growth is slowing, all of which has seen investors face challenging markets so far this year.
- China, however, is doing its own thing, seeking to kick-start economic growth having been in the doldrums, and is showing promise for investors.
- There’s been much media talk of an upcoming recession, but markets have already fallen a fair amount and are now offering discounts on the prospect of one. This could create opportunities.
- In early July, we saw the UK Prime Minister resign following pressure from his party. But while that’s obviously big news within politics, and could potentially affect the government’s economic policy, we wouldn’t expect it to have a large impact on global markets.
Market matters
Three developments this quarter relevant to NatWest Invest
Cost of living still rising
Inflation has once again dominated the news, reaching multi-decade highs. The UK saw prices rise 9.1% for the year to May, with the US just behind at 8.6%. Central banks have raised interest rates several times already this year to try and tackle this. They hope higher rates will encourage people to save rather than spend, causing rising prices to settle down.
Our view: We think inflation will start to ease in the US later this year – the price of some commodities there fell in June (commodities include things like coffee, metals and energy). However, the UK is set for an energy price hike in October which will likely keep inflation higher for longer here.
Economy growing, yet slowing
The outlook for the rest of the year is shifting, with the global economy still growing but not by as much as previously expected. The World Bank has lowered its global growth forecast to 2.9% from 4.1% for the rest of 2022. Meanwhile, concerns about an upcoming recession – the economy shrinking over two consecutive quarters – have been building.
Our view: Although the likelihood of a recession has now increased, it’s not necessarily all bad for investors. Many markets have already fallen a fair amount and are now offering discounts on stocks and bonds because of the prospect of a recession. That means there could be opportunities for investors to get good deals. Also, in the past, we’ve seen stock markets bottom out before a recession was announced and actually recover during the downturn.
China bolsters emerging markets
Emerging markets suffered a sharp slow-down a little earlier than the rest of the world this year, and there’s evidence they may be emerging from the quagmire sooner too. They’ve been bolstered by China’s push to stimulate economic growth as the world’s second-largest economy is so important to the region.
Our view: We’re seeing some initial signs of improvement within China’s economy as its government pushes for growth. People and businesses are starting to borrow more, its exports are increasing and economic trends within its manufacturing sector are encouraging. Meanwhile, the country’s stock market noticeably jumped in June, outperforming global equities.
“Markets can sniff out a slow-down and adjust accordingly. In many ways, the prospect of recession is already old news, and markets have already started pricing it in.”
Lilian Chovin
Head of Asset Allocation, Coutts, which runs the NatWest Invest funds
The big number: 11%
Managing your money
Changes the experts at Coutts have made to the NatWest Invest funds include:
Buying more US stocks
We invested more in US companies in May. We believed the country’s stock markets were being too pessimistic about inflation and interest rate rises, and had therefore overly-reduced prices. This meant we were able to buy stocks at a good price.
Cutting back on bonds
We had anticipated many of the current challenges facing investors, and had reduced our exposure to bond markets before they were negatively hit by rising interest rates.
The degree to which these developments will affect your investment’s performance depends on which NatWest Invest fund you hold. You should continue to hold cash for your short-term needs.
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