Markets conflicted about future direction
There is “little consensus” about the direction of markets in the next few months, according to Federated Hermes, as markets navigate a fraught geopolitical climate.
Markets had been trending downwards in the last few weeks with the ASX 200 down 6.9% since the start of the year and the S&P 500 down 11% over the same period in the US.
Stephane Michel, head of fixed income-multi-asset credit at Federated Hermes, said although markets were moving down, it was doing so in an orderly fashion.
“Despite markets suffering their worst start in memory, they do feel like they’re trading in an orderly, albeit volatile, manner with support and tentative buying at cheaper levels. Any positive rumours or announcement is met with enthusiasm and FOMO (Fear of Missing Out) and buy the dip have been such good performers as investment strategies through the previous crises.
“Occasionally, however, we do get reminded of the prospects of military escalation, stagflation, supply chain disruption, sanctions, energy blockade etc and we move lower still. What is clear is there is little consensus or conviction on which direction we go next.”
His comments echoed those made by Platinum who described markets as being stuck between a bull and bear market and why MFS global investment strategist, Rob Almedia, who cautioned against buying the dip.
Meanwhile, Kunjal Gaya, portfolio manager for emerging markets at Federated Hermes, said commodity prices were also likely to be volatile going forward as they would be impacted by the sanctions imposed on Russia.
“Prices of products such as natural gas, oil, wheat, corn, fertilisers, nickel, and aluminium are skyrocketing and we expect they will remain volatile, as both the conflict itself and the sanctions imposed on Russia raise doubts about the supply of these commodities in the global economy – and, with particular importance for agriculture in Brazil, also the supply of fertilisers, as Russia is a major exporter of such items.
“Higher energy, commodity and food prices will inflict maximum pain on the global economy and middle/lower income households, testing governments in democratic nations with upcoming elections. A protracted war heightens the risks of a global slowdown and recession as households’ disposable income is squeezed.”
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Laura Dew
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