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Global economic prospects are less bright than previously anticipated, driven by concerns of an accelerated interest rate-hiking cycle and the continued war in Ukraine. Inflation continues to surprise to the upside, and in some countries, inflation has reached levels not seen in 40 years. Due to both Russia’s and Ukraine’s contribution to the global commodities markets, the war is likely to push commodity prices higher adding further inflationary pressures. Added to this, the Chinese zero Covid policy of lockdowns exacerbates the inflationary pressures is exacerbating supply chain disruptions and further fuelling inflation.
Of concern, higher inflation has the potential to prompt central banks to raise rates too aggressively, thus further derailing the global recovery and adding to concerns of a global recession.
Consequently, navigating uncharted waters requires a steady hand at the tiller. In these times of uncertainty, one needs a guiding set of principles to navigate through uncertainty. To achieve this requires a disciplined and well-honed process that focuses on what is important and relevant, through the good times and the tough times.
During this period of uncertainty, we remain focused on protecting our clients from permanent capital loss. We do this by investing in good quality businesses with strong cash-flow generation and low leverage as the cost of capital rises, combined with more reasonably valued structural growth stories.