February 2023
Uncertainty and Volatile Markets by Tony Larkins
The general public probably understands the UK market best as it includes companies we know. The UK has been volatile due in part to uncertainty caused by Brexit, the instability caused by the Mini Budget, and currency rates. Having a new Prime Minister and Chancellor appeared to have stemmed the tide of despair, but we still have a huge fiscal black hole and borrowing equates to 99.5% of GDP, which has seen some less-than-ideal decisions made.
India has been performing well as a result of the problems that China is facing- property contagion, technology regulation, and their covid policy have stifled productivity. While India expects to grow its GDP by about 250% over the next ten years, the shift from China to India could mean India’s share value now is already more expensive. Subsequently, China continues to “look” cheap by comparison; with the adage buy- low sell- high, restrictions on growth and outside investors may not mean this represents value.
High inflation has caused mass unaffordable wage demands and strikes; although they help to draw our attention to ineffective systems, often at the point of despair, they can further aggravate lack of supply issues, changing working patterns, and changing demands. In the same way, downloads reduced demand for CDs and CDs reduced demand for Vinyl, working from home and virtual administrative tools have reduced demand for postage, train travel, and large commercial offices. In the future, the electric car’s popularity will certainly change demand for many industries.
The FTSE is near an all-time high, not because the UK looks good, but because of the performance of companies like Shell and BP. The FTSE 250 is perhaps a better gauge of the UK, the index fell in 2022 about 20%, and smaller companies were down about 30%. Smaller companies can adapt quickly to change compared to larger companies, but they are also more vulnerable as they carry less cash to see them through, and borrowing at high-interest rates will hurt them.
Unsurprisingly, share prices and funds are both volatile. It seems as though the more you look at them, the more volatile they appear. So, unless you manage a portfolio and know how to measure the changing price pattern, you would be better off looking at them less frequently. The more you look, the more you worry.
COP 26 and 27 have re-examined the problems the world is facing but the solution is too expensive, especially when the world has no money. I believe the way to save our planet rests with technology that hasn’t been discovered or harnessed efficiently yet. It has been forecast that the population will hit eight billion next year and grow exponentially, and with food wastage at arguably its highest-ever level, finding a solution is paramount.
So, where do we stand for 2023? It depends on when the world peaks for inflation, it will differ between countries, and may have already happened, and when interest rates start to fall. Recession will also continue to have an effect. Unfortunately, you can’t time the market, but you can consider investment time horizons and have a plan ready. An expert financial adviser can help you with this.
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