Between the pandemic, the invasion of Ukraine and volatile global stock markets, it can be difficult to make sense of it all. We want to provide you with some insights to help you further understand the overall market situation and its potential implications for your portfolio.
In this article, we’ll explain:
- What’s going on in the market
- What this means for you and your Inyova investment
- How Inyova is reacting to this situation
P.S. Although we’re currently facing a market downturn, historical data shows that after every crisis there is an upturn, and staying invested is the best thing that you can do to build long-term wealth.
What’s going on in the stock and bond markets right now?
Global uncertainty, Russia’s ongoing invasion of Ukraine, as well as the coronavirus pandemic, continue to be significant catalysts for the current financial market situation.
In fact, commodity prices have been rising sharply – in particular oil and gas prices.
Due to the war in Ukraine, the price of oil has increased by more than 40% and natural gas prices have almost doubled. The war has also had an effect on the supply and price of agricultural goods such as corn and wheat.
The coronavirus pandemic continues to cause disruption to supply chains around the world, causing an increase in prices for the production and distribution of goods.
As a result of the above-mentioned factors, we are facing exceptionally high inflation rates.
Inflation rates are exceeding levels they haven’t reached since the 80s. In fact, in the EU and the US, yearly inflation rates have surpassed 8%.
Rising inflation is not only costly for consumers and the overall economy, but it also has an effect on stocks. Historically, high inflation corresponds with lower returns on stock investments. And, stocks tend to be more volatile when inflation is elevated. This means that stock prices are more likely to fluctuate (rise and fall). In fact, US stocks, measured by the S&P 500 index, have had the worst half of the year since 1970.
This has also had an effect on the bond market. Due to rising inflation rates and subsequent interest rate increases, bonds have also performed negatively in recent weeks. In reality, global government bonds are on course to experience the worst year since 1865. Yes, you read that right!
The drop in bond prices means that investors with a lower risk portfolio are also feeling the dip.
But it’s not all doom and gloom!
What does this mean for you and your Inyova investment?
Your Inyova portfolio is well diversified – with 35-40 individual stocks and bonds, spread across different sectors, industries, regions and company sizes. Diversifying your investment portfolio is a way of managing risk for this kind of market scenario.
As part of this diversification, your investment does include some smaller, more innovative companies, which are still in a growth phase and therefore tend to be more volatile.
Growth stocks are valued on their future potential.
In addition, growth companies are relying even more on capital to grow, which is more expensive if interest rates increase and, hence, reduces short-term growth.
But because your investment portfolio is diversified, any risk in growth stocks is limited.
How is Inyova reacting to this situation?
Firstly, it’s important to understand that we expect these dips to happen from time to time, and we design your portfolio to withstand these fluctuations in the long term.
That said, our Investment Office is constantly monitoring your portfolio.
What does that mean?
Our Investment Office makes sure that your investment strategy is spread across different sectors, regions, currencies, and countries as well as both large and small companies.
Inyova also monitors the financial “health” of the companies in the Inyova Universe. This means that if a company falls below certain financial thresholds, it will be excluded from our universe and replaced by a new company.
Will we change our investment strategy?
At Inyova, we believe in taking a long-term view of your investment. As a result, we don’t try to time the market or make rapid adjustments.
We also regularly re-evaluate whether or not your investment strategy is still optimal and will adjust it if we believe our strategy no longer fits with the overall market conditions.
Is there any good news?
The good news is that, historically, after every crisis, there is an upturn.
Many decades of financial data show the markets trending upwards in the long term, despite short-term turbulence along the way.
Think back to when the stock markets took a major hit during the Global Financial Crisis. This happened around 15 years ago! But investors who sat tight and rode out the storm were soon making strong gains once again.
If you have any questions about your portfolio, please reach out to our Customer Success team. You can email us at [email protected] or call 044 271 50 00. We’re here to help!