Not so long ago, it was hard to see past a time when the Covid-19 pandemic drove headlines, drove markets, and drove our day-to-day interactions. However, here we are in March 2022, and whilst the virus isn’t yet in the endemic stage, Covid-19 certainly appears to be in the rear-view mirror as we continue to see economies open back up. This should begin to release compressed valuations in countries such as China, whilst slowly alleviating some of the supply-chain constraint-driven inflationary pressures.
Although we are in the midst of the second market rocking climate in 2 years, perhaps it is a fitting time to take stock of markets over the period. The Halifax house price index was released this week, and showed strong annual growth in February 2022 of 10.8%, which is the strongest level since June 2007. We are almost 2 years on from the start of the pandemic, and house prices have risen by 16% since February 2020.
An investor who hadn’t seen market performance, and had only heard the headlines over the period would be forgiven for thinking that markets may have suffered irreparable damage. However, whilst we have seen volatility in the market this year due to the situation in Ukraine, markets have performed strongly since the start of the pandemic – the FTSE all world is up 31.08% over 2 years.
Whilst there are still hangovers from Covid-19 that haunt the markets like a night of too many gins, the main example being the bottleneck of supply chain constraints due to delays at borders, staff shortages etc., the market has, broadly, moved on.
Now, back to 2022: intra-day trading saw Brent crude oil breached $130 a barrel, following Biden’s administration announcing (alongside the UK) they will impose a ban on US and UK imports of Russian energy, even without the support of European allies. Reports state that the US will ban Russian oil, liquefied natural gas and coal. Further reports said that the UK isn’t going quite as far nor quite as fast as it is likely that the ban will be rolled out over the coming months, and won’t apply to Russian gas.
Europe will likely be more hesitant to roll out such measures – Europe as a whole is more reliant on Russian oil than the US, and the UK who import a lot of oil from Norway and the North Sea.
The furthering of sanctions to apply to Russian oil and gas exports was always on the table, and is one of the reasons we’ve said that we believe the energy price crisis is likely to be prolonged, and likely to keep inflation elevated for slightly longer.
At a corporate level, this week we have seen the likes of Coca-Cola, Paypal and McDonalds joining a long list of companies in putting their operations in Russia on hold. We are now beginning to see the economic stranglehold on Vladimir Putin tighten at not only the political level, but also the corporate level.
Whilst we are certainly not uncompassionate to the humanitarian crisis unfolding the Ukraine, nor ignorant to the pricing pressures that will but put on energy and many agricultural prices (certainly for the short term), we truly believe that the current backdrop in markets represents a clear buying opportunity.
Tomorrow we have the outcome of the meeting of the European Central Bank (ECB), which is looking likely to see the ECB strike a more dovish tone, which over the longer term will be supportive for markets.
Given the current humanitarian crisis, high inflation, energy price crisis and supply chain constraints easing, there will be a lot to consider.
Hannah Owen, Portfolio Specialist.