Higher rates, lower stocks?

Caspar Rock, Chief Investment Officer, gives an update following the recent market volatility


Caspar Rock

Caspar Rock

Chief Investment Officer

Following a strong start to the year, equity markets around the world, having risen by up to 8% in local currency terms, took a turn downwards last week. The fall accelerated in reaction to higher-than-expected wage growth data in the US as this raised concerns of rising inflation. There were also fears that central banks would raise rates faster than expected this year.

Should we be concerned that this might be the beginning of a trickier market phase where interest rates rise and stocks become relatively less attractive? For the following reasons, we believe that such fears are somewhat overdone:

  1. global growth continues to be robust and the most synchronous for 20 years, with leading indicators presaging more of the same for some time yet
  2. reported corporate earnings and sales continue to be strong and are beating expectations
  3. although we are positioned for an uptick in inflation during the first half of the year, we do not expect core inflation rates to pick up significantly, for the well-rehearsed reasons of technological and demographic change, and the pervasive impact of globalisation and low-cost competition
  4. following the recent shake out in equity markets, positioning and sentiment has moved from the extremes seen in January towards more normal levels.

What are we looking out for?

Most importantly the response of the bond market is key – if it rallies that would be better for equity markets, but if it sells off too aggressively it would be more concerning.

How are we positioned?

  • We have a preference for index-linked over conventional government bonds.
  • We are short in duration to protect against bond market weakness.
  • We are broadly neutral in equity weighting, against a peer group which generally has a higher strategic allocation to the asset class.
  • We are underweight in the UK with a preference for the other regions of the world.

Have we made any changes to our portfolios?

  • Following the recent weakness, we are adding to our position in Japanese equities.

It is fair to say that we are not out of the woods yet – and will continue to watch markets closely.


Caspar Rock

Caspar Rock

Chief Investment Officer

Caspar is Chief Investment Officer. He chairs the Wealth Management Investment Committee, sits on the Cazenove Capital board and is also a member of the Schroder Wealth Management Executive Committee. He joined in 2016 from Architas Multi-Manager Ltd, part of the AXA group, where he was Chief Investment Officer and was responsible for all aspects of the investment activities, including investment philosophy, process and team. He also oversaw portfolio management at two of AXA group’s private banks. He previously headed the multi-manager business at AXA Framlington from 2006 to 2008. Prior to that, he managed a range of directly invested equity and, was Head of European Equities at Framlington and a member of the Healthcare team.

This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 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. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.

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