{"id":5411,"date":"2021-10-25T10:14:21","date_gmt":"2021-10-25T09:14:21","guid":{"rendered":"https:\/\/sarasinandpartners.com\/za\/?p=5411"},"modified":"2021-11-03T09:36:13","modified_gmt":"2021-11-03T09:36:13","slug":"what-could-the-future-hold-for-equity-markets","status":"publish","type":"post","link":"https:\/\/sarasinandpartners.com\/za\/think\/what-could-the-future-hold-for-equity-markets\/","title":{"rendered":"What could the future hold for equity markets?"},"content":{"rendered":"<h3>Stickier inflation and a climate change \u2018black swan\u2019 \u2013 what could the future hold for equity markets?<\/h3>\n<ul>\n<li>Recalibrating policy for a steady recovery will be a delicate balancing act, especially when factoring in levelling-up policies and \u2013 crucially \u2013 climate change and the energy transition<\/li>\n<li>Inflation is likely to be stickier than central bankers and investors had expected<\/li>\n<li>2022 will likely see a slowing of global economic growth from above trend and a tightening of monetary policy, but fears of a stagflation are probably overdoing it<\/li>\n<li>A post-COP26 awakening could see a climate change \u2018black swan\u2019 for some asset prices<\/li>\n<\/ul>\n<p>The third quarter saw a continuation of the low volatility rise in global equity markets in July and August, led by the US but with notable weakness in Pacific and emerging markets, which remained beset by COVID-19. But in September, the trend in the developed markets faltered too: ongoing disruption within supply chains, energy supplies and labour markets have shifted the narrative that inflationary pressures are entirely transitory. Given the extent to which low inflation expectations have caused yields to fall in recent years, driving up the value of all financial assets, a period of slightly higher inflation could suppress some of the recent exuberance.<\/p>\n<p>Central banks began to discuss plans for a very gradual normalisation of monetary policy; furlough schemes began to come to an end, yet labour markets proved unexpectedly tight; natural gas prices doubled in Europe in September (having already doubled since January); supply chain problems worsened; geopolitical tensions rose; and China Evergrande, the world\u2019s most indebted real estate developer, attempted to stave off bankruptcy.<\/p>\n<h3>Stickier inflation<\/h3>\n<p>Vast fiscal and monetary stimulus turned the deepest recession on record to the shortest. While the aftershocks from COVID-19\u2019s economic dislocation are still reverberating across global supply chains and labour markets, there is a growing consensus that as societies adjust to living with the virus, emergency policy support will need to be dialled back.<\/p>\n<p>Recalibrating policy for a steady recovery will be a delicate balancing act. During periods of deep uncertainty, monetary support can help underpin consumer, business and market confidence. However, it is not particularly helpful when addressing long-lasting supply-side dislocations. For much of 2021, inflation in the US, UK, Germany and many emerging markets has been running substantially above central bank targets \u2013 driven in large part by misalignments between supply and demand. Persistent supply disruptions suggest that inflation will likely remain elevated for much of 2022 as well. If crisis-level monetary support remains in place as supply shocks ripple through the economy, well-anchored inflation expectations risk becoming unsettled. To complicate matters, an ambitious fiscal policy agenda that seeks to \u2018level up\u2019 those who have been left behind is likely to sustain supply challenges, and that is before considering climate change and the energy transition.<\/p>\n<p>The short-term energy squeeze driving power prices higher is a global phenomenon and, in many ways, a perfect storm illustrating the disruptions that lie ahead as we decarbonise. Current extreme energy prices will settle back but in the medium to long-term, intermittency of renewables will be an ongoing challenge and new storage technologies and capacity will take time to develop. Higher prices will not lead to greater supply because of the capital discipline being imposed by sustainability policies on energy markets. It looks increasingly likely that energy will remain expensive during the green transition. Added to that, demand for metals like copper and nickel is set to surge as the uptake of renewables and electric vehicles accelerates. China\u2019s control of the rare earth minerals needed for batteries also adds potential price uncertainty.<\/p>\n<p>A clear feature of the post-pandemic landscape looks to be slightly stickier inflation than many central bankers and investors had been expecting. Higher prices may hobble economic growth for consumers and some industries as the energy share of spending increases from the low levels of the last two decades. The regions taking the hardest hit will again be the emerging markets and developing economies that are already struggling to cope with COVID, adapt to climate change and leapfrog to low-carbon development pathways. Central bank policymaking, domestic energy politics and international climate negotiations are all the more challenging and the risks of missteps have risen.<\/p>\n<h3><img decoding=\"async\" class=\"aligncenter wp-image-5487 size-full\" src=\"https:\/\/sarasinandpartners.com\/za\/wp-content\/uploads\/sites\/4\/2021\/11\/Chart_AS2.jpg\" alt=\"\" width=\"800\" height=\"570\" srcset=\"https:\/\/sarasinandpartners.com\/za\/wp-content\/uploads\/sites\/4\/2021\/11\/Chart_AS2.jpg 800w, https:\/\/sarasinandpartners.com\/za\/wp-content\/uploads\/sites\/4\/2021\/11\/Chart_AS2-300x214.jpg 300w, https:\/\/sarasinandpartners.com\/za\/wp-content\/uploads\/sites\/4\/2021\/11\/Chart_AS2-768x547.jpg 768w, https:\/\/sarasinandpartners.com\/za\/wp-content\/uploads\/sites\/4\/2021\/11\/Chart_AS2-520x371.jpg 520w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/h3>\n","protected":false},"excerpt":{"rendered":"<p>Stickier inflation and a climate change \u2018black swan\u2019 \u2013 what could the future hold for equity markets? Recalibrating policy for a steady recovery will be a delicate balancing act, especially when factoring in levelling-up policies and \u2013 crucially \u2013 climate change and the energy transition Inflation is likely to be stickier than central bankers and...<\/p>\n","protected":false},"author":20,"featured_media":11735,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28],"tags":[],"coauthors":[100],"class_list":["post-5411","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-markets"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>What could the future hold for equity markets? - Sarasin &amp; Partners South Africa<\/title>\n<meta name=\"description\" content=\"A clear feature of the post-pandemic landscape looks to be slightly stickier inflation than central bankers and investors had been expecting.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/sarasinandpartners.com\/za\/think\/what-could-the-future-hold-for-equity-markets\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What could the future hold for equity markets? 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