Webinar: Market update and economic outlook

"When we started doing webinars two years ago, everyone was learning about it's all about Kremlinology," observes Caspar Rock. 

Russia's invasion of Ukraine has changed the outlook for the global econony and markets. Covid also remains a significant threat, with strict lockdowns now in place in many parts of China. 

These challenges are contributing to a slowdown in growth from last year's very strong levels. “It's clear we are towards the end of the business cycle," notes  Caspar, "though we are not yet convinced we will see a US recession in 2023."

Meanwhile, inflation is set to remain elevated. “Wars have tended to be associated with periods of higher inflation,“ suggests Caspar. The US is also facing homegrown inflationary pressures – notably in wages and rent. In the US, rent accounts for around 40% of the inflation basket.

The global economy may be heading towards a period of “stagflation” – a combination of high inflation and low or slowing growth.

Chris Lewis explains the changes this is prompting us to make in client portfolios: "We have a more cautious stance on equities and are tilting portfolios towards higher-quality companies with strong balance sheets and the ability to protect margins in an inflationary environment."

We have also increased exposure to asset classes that have performed well during previous period of stagflation, such as gold, commodities and inflation-linked bonds.

Ahmet Feridun explains how the crisis in Eastern Europe has accelerated a number of structural shifts in the global economy.

The transition to renewable energy is set to accelerate as a result of the invasion - especially in Europe. The EU was already investing heavily in energy transition to meet its emission-reduction targets – and has now announced further investments to reduce its reliance on Russian oil and gas.

The war in Ukraine also means defence spending is set to increase significantly in both Europe and the US. Much of this will be allocated to cyber security. Even before the invasion, we were already seeing a higher incidence of cyber attacks – many of them state-sponsored. We expect this trend to continue. 

Covid and the rise in geopolitical tensions have both underlined the importance of supply chain resilience for global companies. Many are now bringing production closer to home – and are taking advantage of the shift to automate production processes. This provides a powerful tailwind for many industrial and technology companies.

Innovation continues to drive impressive developments in technology. Over the next decade, we could see 25% of the global population have their genomes sequenced and a twenty-five fold increase in the number of satellites, leading to exciting advances in medicine and communications.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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