Equity strategy and market outlook – April 2022

In this month’s strategy piece Alastair George believes that year to date, 2022 will have disappointed bullish investors. While the day-to-day narrative has been shifting between the war in Ukraine, a cost of living ‘crisis’ and China’s COVID-19 lockdowns, these are the crashing waves obscuring the movement of the tide. Monetary policy is being rapidly normalised and as a result abnormally high valuations are being progressively reset lower. We believe this process has further to run. Meanwhile, bond markets have moved swiftly to account for a significant proportion of all but the most extreme scenarios for US Fed policy over the coming three years. With US 10-year bond yields now close to 3%, we believe the market is now finely balanced between currently hawkish central bank rhetoric and a likely slowdown in economic activity in coming quarters. We move to a neutral rather than underweight outlook on government bonds. We stick with a neutral outlook on equities but believe investors have to be increasingly selective and seek exposure to sectors that benefit from higher interest rates and also represent less cyclical earnings streams. In an environment of normalising equity valuations we maintain the same strategy, which is to focus on traditional sectors such as energy, pharma, banks, insurance and defence, which have historically offered a degree of inflation protection while avoiding more overvalued segments of the global equity market, either by region or sector.

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