January 2022 Investment Summary

For our January 2022 Investment Summary, we take a closer look at the latest news and market trends we are seeing take place this month.

A small rally in the last few days of January turned a disastrous start to the year for major equity markets into merely a terrible start. Only the FTSE 100 offered positive returns as markets reeled from concerns over rising inflation, and the newly found desire by central banks to tame it. In addition, the rising tension surrounding Ukraine and the potential for a Russian invasion added to investor fears. Energy prices rose further as the strong global economy was clashing with energy supplies that are unable to match rising demand. Years of reduced capex spending in the energy sector has left the world (for the moment at least) facing steadily rising prices for energy and many other commodities.

Inflation has now reached levels that central banks can no longer ignore. They are being pressured by governments and the general populace to “do something”. The Federal Reserve at their latest meeting strongly hinted they would raise rates in March. They also signaled their readiness to shrink the balance sheet. The Bank of England at its latest meeting hiked rates again and stated they too would begin to shrink their balance sheet. Even the ECB suggested that they would be prepared to act if inflation stayed high. The financial markets were caught off guard and began to rapidly reprice their expectations for rate hikes with bond markets seeing a sharp rise in yields at the same time as equity prices fell. A very unpleasant combination for investors but one we may have to get used to for this year.

Central banks continue to forecast that inflation will fall in the second half of this year back towards their 2% target as supply chains normalise, goods demand begins to moderate (in favour of a return to greater consumption of services) and year-over-year base effects fall out of the calculations. But central banks are no better forecasters than the rest of us. It is not clear that inflation will fall as fast as they desire (hope). In January, the expectation was that the US labour market would see a decline in hiring due to the Omicron variant of Covid-19, instead we saw strong hiring and upward revisions to the previous two months. To top it off, wage gains showed their strongest rise yet with average hourly earnings growing at a 5.7% annual pace.

It is clear that central banks are in a difficult spot (much of their own making). They can no longer continue the exceptionally accommodative polices they have been running since the onset of the Covid-19 pandemic. How high do rates need to go for inflation to start to decline? How large will the reductions in their balance sheets need to be to aid in reducing inflation? There is no clear answer to these questions. Don’t get caught up in the “will the Federal Reserve hike 0.25% or 0.50% debate in March?” That may matter for a day or two in markets, but the bigger picture is how far will they have to go? They will tighten until they achieve some results. Tightening policy will result in slower growth, but it is not a simple or clear equation. One cannot say that hiking by 1.0%, for example, will reduce growth by 0.5%. We expect central banks will go slowly, but they will be persistent until they see inflation trending lower. This is a big change to the investment environment. We are losing the very powerful tailwind of super abundant liquidity that we have been enjoying for the past decade. Markets are already reacting to this, and central banks collectively have done very little. What happens if the liquidity tailwind turns to a headwind?

Be mindful of stocks with rich valuations and no earnings. Volatility is rising and liquidity is poor. Who would have thought that Meta (Facebook) could fall 25% in a single day? They were a $1 trillion dollar market cap stock that is very widely held and very profitable. The markets will notice the exit from super easy money.

Read more from our Chief Investment Officer Jeff Brummette in our 2022 Investment Markets Outlook to kick off the year of 2022. Stay tuned for more insights from Oakglen on the hot topics and latest trends in the financial markets. You can also sign up to our mailing list for more regular communications using the section below.

Jeff Brummette

Chief Investment Officer

+44 (0) 20 4583 1129

Disclaimer

This document is distributed by Oakglen Wealth Limited and / or Oakglen Wealth (Jersey) Limited (hereafter “Oakglen”) to you for your information and discussion only. Unless otherwise stated nothing in this document constitutes investment, legal, accounting, real estate, conveyancing, surveying or tax advice, or a representation that any investment is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. It is not a solicitation or an offer to buy or sell any security or other financial instrument. Any information including facts, opinions or quotations, may be condensed or summarised and is expressed as of the date of writing. The information may change without notice and Oakglen is under no obligation to ensure that such updates are brought to your attention. The price and value of investments and any income that might accrue could fall or rise or fluctuate. The price of shares and income from them may fall as well as rise and is not guaranteed. You may not get back the amount of your original investment. A change in the economic environment, possible changes in the law and other events may cause future performance to deviate from that expressed or implied in this document. Please note that past performance, simulations and forecasts are not a reliable guide to future returns. If an investment is denominated in a currency other than your base currency, changes in the rate of exchange may have an adverse effect on value, price or income. Investing in Packaged Retail and Insurance-based Investment Products (PRIIPs) carries a high level of risk and may not be suitable for all investors.

Any information provided by a client and used to produce this document will have been checked by Oakglen for plausibility only and the client notified accordingly of any obvious anomalies. This document and any related recommendations or strategies may not be suitable for you; you should ensure that you fully understand the potential risks and rewards and independently determine that it is suitable for you given your objectives, experience, financial resources and any other relevant circumstances. You should consult with such adviser(s) as you consider necessary to assist you in making these determinations. The opportunities and risks associated with each investment product can be found in the relevant underlying securities prospectus and any other supplementary documents. All documents will be made available at any time upon request.

Oakglen does not advise on the tax consequences of investments, and you are advised to contact a tax adviser should you have any questions in this regard. The levels and basis of taxation are dependent on individual circumstances and are subject to change. This document may relate to investments or services of an entity/person outside the United Kingdom, or to other matters which are not regulated by the Financial Conduct Authority, or in respect of which the protections of the Financial Services Compensation Scheme. Further details as to where this may be the case are available on request in respect of this document. Additionally, this document may relate to investments or services of an entity/person outside Jersey, or to other matters which are not regulated by the Jersey Financial Services Commission, or in respect of which the protections of the Jersey Financial Services Commission for retail clients. Further details as to where this may be the case are available on request in respect of this document.

This document has been prepared from sources Oakglen believes to be reliable, but we do not guarantee its accuracy or completeness and do not accept liability for any loss arising from its use. Oakglen reserves the right to remedy any errors that may be present in this document. Oakglen, its affiliates and / or their employees may have a position or holding, or other material interest or effect transactions in any securities mentioned or options thereon, or other investments related thereto and from time to time may add to or dispose of such investments.

This document is intended only for the person to whom it is issued by Oakglen. It may not be reproduced either in whole, or in part, without our written permission. The distribution of this document and the offer and sale of the investment in certain jurisdictions may be forbidden or restricted by law or regulation. This communication does not constitute the solicitation of an offer to purchase or subscribe for any investment or service in any jurisdiction where, or from any person in respect of whom, such a solicitation of an offer is unlawful.

Investments may have no public market or only a restricted secondary market. Where a secondary market exists, it is not possible to predict the price at which investments will trade in the market or whether such market will be liquid or illiquid. As such, for investments not listed or traded on any exchange, pricing information may be more difficult to obtain, and the liquidity of the investments may be adversely affected. A holder may be able to realise value prior to an investment’s maturity date only at a price in an available secondary market. The issuer of the investment may have entered into contracts with third parties to create the indicated returns and/or any applicable capital protection (in part or in full). The investment instrument's retention of value is dependent not only on the development of the value of the underlying asset, but also on the creditworthiness of the Issuer and / or Guarantor (as applicable), which may change over the term of the investment instrument. In the event of default by the issuer and/or Guarantor of the investment, and / or any third party the investment any income derived from such contracts is not guaranteed and you may get back none of, or less than, what was originally invested. Parties other than the Issuer or Guarantor (as appropriate) mentioned in this document (for instance the Lead Manager, Co-structurer, Calculation Agent or Paying Agent) do neither guarantee, repayment of the invested capital nor financial return on the investment product, if nothing is indicated to the contrary. Any capital protection given is usually an inherent part of the product; provided through the use of options, futures or other derivative products. You may have to accept smaller returns on an investment relative to a direct investment in the underlying index, basket, etc. because of the costs involved in providing the capital protection. Such capital protection normally only applies if the investment is held until maturity. The amount of initial capital to be repaid may be geared, which means that a fall in the underlying index or securities may result in a larger reduction in the amount repaid to investors. Alternative investments, derivatives or structured products are complex instruments that typically involve a high degree of risk and are intended for sale only to investors who are capable of understanding and assuming the risks involved. Structured products carry counterparty risk, in that in the event of default by the issuer you may lose some or all of your capital invested even when the product carries capital guarantees. Where this document relates to emerging markets, such investments should be made only by sophisticated investors or experienced professionals, who have independent knowledge of the relevant markets, are able to consider and weigh the various risks presented by such investments and have the financial resources necessary to bear the substantial risk of loss of investment in such investments.

The services described are provided by Oakglen or by its subsidiaries and/or affiliates in accordance with appropriate local legislation and regulation. Certain products and services may not be available in all locations or to all Oakglen clients.

Data Source: Oakglen Wealth (Jersey) Limited and Oakglen Wealth Limited, otherwise specified.

Oakglen is a registered business name of Oakglen Wealth (Jersey) Limited and Oakglen Wealth Limited.

Oakglen Wealth (Jersey) Limited is regulated in Jersey by the Jersey Financial Services Commission for the conduct of Investment Business and is a limited company with company number 121454, incorporated in Jersey on 7 June 2016. Its business address is 4th Floor, 1 IFC, St Helier, Jersey, JE2 3BX.

Oakglen Wealth Limited is authorised and regulated by the Financial Conduct Authority. The registered address of Oakglen Wealth Limited is 30 Golden Square, London, United Kingdom, W1F 9LD and is registered in England and Wales with number 13182724.

All articles