Navigating Global Capital Markets: Midyear 2022 Investment Outlook

Updated: 3 hours ago


INSIDE

Macro/Markets Conditions

GDP, Rates, Policy

Positioning

SAA and TAA

Scenario Analysis

Base, Bear, Bull Cases

Timely Topics

Inflation and Recession

Paradigm Shift

Leonardo Cardoso, CFA

Welcome to another edition of our quarterly “Navigating Global Capital Markets”. As we enter Q3 of 2022, heavy losses have accumulated in global equities and fixed income markets. On one hand, the recovery from the impact of COVID-19 still moving forward. On the other hand, global inflationary pressures from unprecedented monetary policy incentives to fight the global pandemic, which have been further exacerbated by the four-month long Russia/Ukraine war and the Chinese zero COVID policy, have rattled the world.

World map showing countries who raised interest rates in 2022
Figure 1: The Year Of The Hawk

As a result, over 80 central banks have turned hawkish in 2022 (figure 1), with the U.S. Federal Reserve so far raising the target range for fed funds by 1.50% (0.75% in the last meeting alone) to finish the 1H2022 at 1.75%.


The high inflation/high interest rates combo resulted in rising U.S mortgage rates, which together with fiscal restraint, a strong USD, depressed consumer sentiment and financial market losses in equities and fixed income, have been raising the expectations that a global economic deceleration could turn into a recession.


Looking ahead, valuations are obviously much more attractive than they have been during the last 12 months or so. Nevertheless, the risk of global economic deceleration, and even a recession, has been much more real.


When Navigating Global Capital Markets, we must first attempt to understand where we are and what is the investment landscape, to try to figure out where we are going. In this quarterly publication our focus is to give you an insight on our thinking and positioning ahead of expected events and conditions. For such, we rely on the Growth and Inflation Matrix together with an assessment of employment, monetary and fiscal policy conditions to guide us towards rational instead of emotional thinking.