Investment Newsletter – April 2022
The World Bank noted that the war in Ukraine threatens the uneven recovery of developing East Asia and Pacific countries from the COVID-19 shock. The war comes on top of the economic distress caused by the lingering COVID-19 pandemic, the financial tightening in the United States at high valuation, and the pandemic resurgence amidst zero-COVID policies in China. Overall, the war, financial tightening and China slowdown are likely to magnify existing post-COVID difficulties.
Global fund managers expect stock markets across the globe to enter a bear market, with a more than 20% decline likely this year, Bank of America’s monthly survey showed. Nudged by the Russia-Ukraine war, 60% of the BofA survey respondents now believe a bear market is around the corner in 2022, double of 30% in February. In anticipation of a bear market, fund managers have increased cash positions to the highest since April 2020 – early COVID-19 pandemic days, while the equities allocation plummeted amid monetary tightening environment.
US companies are rushing to repurchase large volumes of shares to take advantage of recent stock market volatility and reassure investors as growth slows. Traditionally, listed companies spend cash to fuel growth rather than return excess to shareholders, have recently joined the trend of share repurchases, as management teams use share buybacks to prop up demand for their stock and increase “profitability” on an earnings per share basis by reducing the number of shares in circulation.
As of 29 March 2022 , Bill Dudley, Bloomberg Opinion columnist and former Federal Reserve Bank of New York President, said he does not think the Fed can achieve a “soft landing,” slower growth and lower inflation without triggering a recession. Clearly, history is not on Chairman Powell’s side in his quest to tighten the money supply while avoiding a recession, linked to rising unemployment rates. Dudley believes the Fed has waited too long to start reducing stimulus at a time when inflation rates are already far above their target of an average of 2% inflation. “The Fed’s application of its framework has left it behind the curve in controlling inflation,” Dudley said. “This, in turn, has made a hard landing virtually inevitable.”
As geopolitical tensions around the world have been on the rise, Southeast Asian stocks are becoming a haven for international investors fleeing a worsening outlook for global equities who are hoping for sustained strength in the commodity-heavy economies of the region.
This is a very unique environment that we’re in as you have both demand shocks and supply shocks to the system at the same time. Demand for commodities is likely to remain strong post-pandemic even if geopolitical tensions ebb, fuelled by factors like electric car battery production, which requires metals such as copper and nickel. A USD 1 trillion US infrastructure bill passed in November 2021 is increasing demand for steel, cement and other commodities as well. On the other hand, the US and its European allies consider imposing a fresh round of sanctions on Russia for its military offensive in Ukraine and the Iran nuclear talks appear to have hit a standstill, indicating the largest commodities supply shock since the 1973 oil embargo.
