The Easter holidays may be coming to an end, but Spring is now definitely upon us, so is it any wonder that markets remain as buoyant as they are? Actually, if you look at what is going on in the background, you might well wonder whether investors have become blind to the trials and tribulations that surround us. There is, after all, a deepening political crisis in Westminster, we have the start of the second phase of Russia’s “special military operation” in Ukraine, the IMF has downgraded expectations for global economic growth and the inflation situation is getting worse.
Perhaps the calm state of markets can be put down to the fact that we just come through a holiday season which has been all the more important as it is the first to take place without Covid restrictions. However, it looks to me as though cost of living concerns are trumping other worries. Professional investors seem to be backing equities on the basis that real assets do provide some protection against the ravages of inflation.
Presently central banks appear to be divided on how best to tackle the problem of rising prices, with the Fed in America taking a more hawkish stance than the European Central Bank. Of course, Europe is more exposed to the consequences of the war on its border, but a rising cost of living will strike just as hard there. And with the range of goods impacted by the conflict in Ukraine growing daily, the situation looks set to get worse.
On the other side of the world, China is introducing measures to support the economy at a time when successive lockdowns are impinging upon consumer activity. In this regard their approach is similar to how they attempted to combat the coronavirus crisis when it first interrupted life in the world’s most populous nation more than two years ago. At least growth there, which came in at 4.8% in the first quarter of this year, is holding up better than feared.
We can expect a more domestic focus as the May elections grab the spotlight and the Downing Street soap opera enters its next phase. What happens in the eastern Ukraine may well emerge as an important factor for investor sentiment, but in the meantime there is plenty else to grab our attention. Not least is that May is just around the corner – and you know what the old adage says about what investors should do as Spring draws to a close. The good news is that this advice tends not to work these days.
