Investment guide

Quarterly market update

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Q4 2022: Recession fears take focus

Investment highlights from 1 October to 31 December 2022

Published: January 2023


At a glance

  • Global inflation appears to have peaked, but central banks remain cautious about easing interest rates.
  • Recession fears began to spook investors, causing both stock and bond markets to wobble towards the end of 2022.
  • China has suffered from Covid-related disruption, with the virus spreading rapidly since the government eased lockdown restrictions. 

Market matters

Three developments this quarter relevant to NatWest Invest

Peaked inflation

Although it’s been the talking point of the year, it looks like inflation across the world has finally reached its ceiling. Annual inflation numbers have started to fall but remain at multi-decade highs. The rising cost of goods in the US has been slowing since July, but the UK and the rest of Europe only saw a deceleration in November.

Our view: Central banks have had an ongoing battle trying to tame climbing inflation by raising interest rates. While this appears to have worked, we believe central banks will remain cautious and won’t reverse their rate hikes quickly. We think interest rates will peak in 2023, but it’s unlikely to happen until later this year.

Markets focus on recession

As fears of a recession began to creep in towards the end of 2022, both stocks and bonds fell in December – a pattern seen throughout the year.

Our view: Following the round of interest rate hikes from central banks in November, markets turned their focus to the likelihood of a recession across Europe and the US. With what we know already, it’s likely that the UK and Europe have already fallen into recession. We’re just waiting for confirmation from the official statistics. For the US, it doesn’t look like they’re in a recession yet, although it’s possible its economy will contract in 2023. 

China’s Covid conundrum

Having been in and out of lockdown throughout much of 2022, China began relaxing its Covid measures in November. While this was initially welcome news for investors, a rapid rise of cases has caused further chaos, with hospitals reportedly overwhelmed.

Our view: Despite positive developments in China, with a renewed focus on economic growth, we continue to see some specific risks linked with the lack of political transparency. As a result, we remain somewhat cautious on some parts of the Chinese market, but like broader emerging market stocks. Of course, what happens in China has a big effect on general emerging market exposure, so we’re keeping an eye on developments there. 

The big number: 11.1%

The UK’s year-on-year inflation figure posted for October – its highest since 1981 – before declining to 10.7% the following month.

Managing your money

Changes the investment team at Coutts have made include:

Adjusting our Japanese government bond exposure

We reduced our investment in Japanese government bonds due to interest rate uncertainty.

Managing US exposure

We reduced our US stock market exposure, replacing it with US government bonds. We believe the environment will turn more positive for bonds before it does for stocks as the peak in interest rates approaches.

Learn more about investments

Whether you’re an experienced investor or just finding out what investing is, we’ve got a range of articles to help you understand more about investing.

We regularly update our articles depending on what’s happening in the market so check back for future updates.

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