Recently, we have experienced a small set off in global equity markets. This has resulted from the sharp rise in bond yields and the expectation of rising interest rates. This is the start and across the region interest rates are rising. The call by the RBA that interest rates will not rise until 2024 may well have been premature. New Zealand raised their rates last week.
It’s becoming obvious that we are experiencing slower economic growth. The prospect of supply chain shortages has become very real and the thinking is now changing that this may extend beyond the short term. This in turn is leading to price increases and yes – some inflation.
With the above in mind we continue to trim back exposure to growth, while our investment managers trim their own positions, taking profits from the higher growth technology sector stocks and adding more to their defensive stock positions ie banks and utilities. The US Federal Reserve (The Fed) has started the process of cutting back on bond purchases from November which means that this dampener on interest rate rises will be released. This means that rising interest rates will have a negative impact on the technology stocks and those stocks that are more highly leveraged to debt.
So while we are not saying it’s the end of the party, we are saying you need to be more acutely aware of where markets are at and have ample cash in reserve for buying opportunities.
Watch this space and have a great week!