Welcome to our 2022 investment review (full year) by FPC’s Investment Director and Senior Adviser, Mike Lea. Mike has summarised the key elements below but you can also view his short presentation or click on the link at the end of the post to access the full version of his report:
- Taking risk in 2022 paid off (relatively) as world stock markets significantly outperformed fixed interest.
- The UK stock market led the way on the back of large-cap energy, defense and financial sector performance.
- UK gilts and corporate bonds experienced extreme volatility from poor government policy communication.
- As a result, the pound fell by -26% against the US dollar before recovering -11% for the full year.
The past year saw the emergence of a new environment for investors. Rising interest rates globally to curb inflation is pushing most major economies into recession and it suggests 2023 will be challenging for many companies and individuals alike. We will likely see investors take a more cautious approach this year as company earnings come under pressure and the opportunity cost of investing in corporate bonds with yields over 5% garners attention for the first time in over a decade.
Inflation has likely already peaked in the UK in October with CPI at 11.1% but may fall stubbornly as workers start to flex their muscles in search of higher wages in particular in public services, which could cause continued pressure on prices. Interest rates will continue to rise but at a more modest pace and talk of a potential easing later in the year will take place due to weak economic data.
Financial markets will be ahead of the curve, and whilst we expect stock markets to potentially weaken further in 2023, the bottom will be hit before economic data gives evidence that the worst of the recession has past.
Click here to access the full version of Mike’s report: 2022 Investment Review – Full Year