As we come towards the end of the first month of 2022, the question that’s being raised more than anything is simply; what’s going on?!
What’s going on with Russia and Ukraine and how NATO are responding, what’s going on between China and Taiwan and how the US are responding, what’s happening in the markets globally, what is the interest rate policy going to be, how much is inflation going to impact, what impact will there be on exchange rates for currencies, what has been going on in Number 10 Downing Street, and where are we with Covid, are some of the question that are unanswerable at the present time.
With so many “what’s going on” questions outstanding, it’s no surprise that this gives rise to uncertainty and that is the very thing that markets don’t like.
At the end of 2021, yes, less than a month ago, markets were at a very strong position and when one looks back historically, it was fully expected that early in the New Year, we would see some reduction in values as profit taking and market corrections unfold, all of which is part of the natural cycle of Stock Markets globally. Nothing unusual there.
At any point in time, there are always uncertainties, but just at the moment, the list seems to be almost endless. My list above is simply grabbing some of the headlines, but there are many more aspects that you could add to that list.
A great demonstration of how this manifests as volatility in markets could be given from earlier this week when the Dow Jones Index in the US dropped by over 1,000 points one day, but at the end of that same day, managed to close 92 points up. That in itself, is a huge swing of sentiment.
The big question therefore, is with all of this uncertainty and with the current market volatility, is there major cause for concern from an investment management point of view?
With this in mind, I’ve been speaking in detail to the various Fund Managers that we work with, both to gain their individual views and also the house views that their organisations have, which are based on the research and data that they have available to them.
The message coming back from all of them is very similar, inasmuch that whilst there are a whole host of factors that are unsettling markets at the moment, the alarm bells are not ringing overall and that the medium and long term prospects for economic growth and continued recovery, and containment of inflation are all looking positive and that the short term volatility being experienced in markets today, should not detract from the longer term objectives and strategy for the investment portfolios.
Hindsight wisdom is a wonderful thing, but actually, history does prove that these periods of volatility inevitably create opportunities, from which there will be winners and losers, but overall, the long term trends are largely unaffected.
Having said all of that, there are some aspects of market reaction that even I don’t understand, and in particular, reverting to interest rates for a moment, it has been fully expected that the Federal Reserve in the US will increase interest rates during 2022 and in fact, it was believed that the markets had already factored in 4 rate rises during the year as their expectation. Why then did markets react so badly overnight to the news from the Fed that they are expecting a 0.25% interest rate rise without specifying exactly when? Surely this is not new news, but rather clarification of expected news.
Far Eastern markets however got spooked and have fallen overnight and at the time of starting this News Letter, (prior to UK and European markets opening on Thursday morning) it was anticipated that UK and Europe will open lower and that a similar trend will follow in the US. However, now that I am finishing, it is afternoon and the expected downturn has not materialised and the UK, EU and US are all showing increases! The answer for now is not to look too closely or too often!
Although inflation is much talked about, and it’s been widely acknowledged that it will be with us for slightly longer than had been anticipated last year, nonetheless, there are a number of factors that should see this fall naturally in 12 months or so and it should not therefore be a showstopper in the interim. Those of us who are old enough to remember back to the inflation of the 1970’s, always have that fear in the back of the mind, but nobody is suggesting that we’re going to revert to those levels of hyperinflation and all the associated damage that can be done.
Probably the biggest unknown is the situation between Russia and Ukraine, but one can only hope that the political sabre rattling will end with some kind of face-saving political agreement that the parties can live with, and we will all be able to breathe a sigh of relief.
Only time will tell!
And Now For One More What’s Going On?
On this subject, I can be a little more specific in terms of what is going on with RAFP, which I thought would be appropriate as I have had a few questions arising from my last News Letter when I made some passing references to Bates Campbell and our future plans.
Martyn Bates and Lynne Campbell, used to work for me in my old Company, and when we moved on from there, they took the opportunity to set up in business on their own and Bates Campbell was formed. They took one of my earlier corporate business ideas and a few of the clients and evolved this by providing services to US parented businesses that wanted to set up in the UK.
This part of their business has grown significantly and in addition to these corporate clients, they have a number of private clients who they look after as well in a very similar way to RAFP.
With effect from April 2021, we started the process of bringing our businesses together, with our first step being RAFP providing a “regulatory umbrella” for BC, to replace their previous network arrangements. This was a positive move for them as it gives them full regulatory independence and now we are in the process of merging the two businesses into one new (small) group.
This will bring some economies of scale but more importantly, it will give us a broader base from a staffing point of view. This in turn will ensure continuity for clients, staff and the stakeholders as we respond to all of the changes that we will continue to experience in the financial world.
As some of you have been kind enough to point out, I am not getting any younger and you have questioned whether I will be “pensioned off” at some stage as part of this process! Whilst that will happen one day, I am sure, it is not on the agenda any time soon, but I will be taking the opportunity to introduce you to other members of the team as we move forward, so that we can ensure you have more people to call on should the need arise.
You may well also observe that I cut down my working hours, but I am still around for the foreseeable future.
We now simply await the FCA to give their approval to our proposals and we will be able to complete the task.
Do let me know if you have any questions and we will be sure to keep you informed of progress.
Best wishes from all at RAFP.