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Investment guide

Quarterly market update

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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.

The big number: 11%

The Bank of England says UK inflation could rise to this in October, when another household energy price hike is expected.

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.

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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