NZDF Investment Insights Q4 2022

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welcome to this edition of investment
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insights today we have James Wilson with
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us welcome James thanks Natasha
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with the backdrop of stubbornly high
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inflation persisting in major economies
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together with the ongoing Russia Ukraine
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crisis how have the markets been
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performing this quarter
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you have probably seen on the news that
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investment markets have had another
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tough quarter Global share markets have
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fallen over four percent bringing major
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indices back into beer market territory
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and bonds which should be expected to
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provide some cushioning when share
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markets fall continue to post negative
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returns due to Rising interest rates the
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New Zealand dollar continued to
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depreciate particularly against the US
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dollar however the New Zealand share
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market which has a more defensive
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composition bucked the trend and
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generated a positive return over the
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quarter
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High inflation has predominantly been
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the cause of the weak global market
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returns not so much the war in Ukraine
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the war has showed no signs of stopping
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recently we've even seen Ukrainian
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forces drive back the Russian army in
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some areas only to be met with a Russian
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escalation of more troops and the
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annexation of four Ukrainian regions so
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it certainly feels far from a resolution
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there and while this war hasn't been
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driving Global share or bond market
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returns it continues to put pressure on
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commodity prices such as energy and food
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which we've all likely felt at the
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petrol station and the supermarket it is
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one of the reasons Global inflation
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remains significantly elevated as a lot
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of countries like New Zealand have to
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import these essential Commodities at
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higher prices and this led to inflation
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at a time when inflation was already
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high this has been particularly bad for
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Europe where inflation has hit a new
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high for the 11th consecutive month
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above 20 in some countries the US isn't
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too far behind with annual inflation up
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8.3 percent with President Biden
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recently announcing the inflation
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reduction act in New Zealand we are also
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not too far behind annual inflation is
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up 7.3 percent which is a 32-year high
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there has been a lot of discussion
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lately regarding the likelihood of a
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soft burst hard Landing what are the key
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issues that are likely to determine
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which way economies may head and what do
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each of these scenarios mean for New
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Zealand investors
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you may have seen in the media recently
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that the central banks around the world
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include in The Reserve Bank of New
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Zealand are raising interest rates in
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order to slow the economy to bring
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inflation under control the problem is
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the impacts of higher interest rates can
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take a while to take effect
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a soft Landing is when the central banks
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are trying to look to bring inflation
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under control without causing a severe
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downturn in the economy and getting the
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balance right is often referred to as
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walking on a tightrope if the central
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banks raise interest rates too much it
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could push the economy into a more
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significant slowdown and that's what we
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mean by a hard Landing this is likely to
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be detrimental for shares and bonds our
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view is that a soft Landing is still
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possible and if so investment markets
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are more likely to Stage a recovery the
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current pressures that would normally
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lead to a hard Landing are being offset
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by consumers and businesses remaining in
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Good Financial shape this has been more
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recently helped by energy investment
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packages which have been introduced
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across developed countries such as the
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United Kingdom along with other European
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countries which include Denmark Bulgaria
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Germany and Italy where they have
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announced a household and business
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energy subsidy as we are coming to the
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end of 2022 can we expect to see more of
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the same in the markets we certainly
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expect markets to remain volatile
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due to a number of uncertainties and
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significant risks which remain we are
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keeping a close eye on inflation and
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interest rates in particular which could
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result in a wide range of scenarios
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as well as impacts of any further
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geopolitical risks and the economic
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developments in the UK which many have
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begun to describe as a fiscal car crash
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in this volatile environment having a
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strategy which is Diversified across a
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range of asset classes such as property
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and infrastructure and into asset
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classes which can offer some protection
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against inflation has never been more
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important but for now the most important
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thing to do is to choose the most
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appropriate investment strategy which
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suits your financial objectives and
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personal circumstances
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