12 July 2022 - 18:47We are halfway through 2022, which started on a somewhat chilled note, but what a time it has been in financial markets.
I, like others in Team Transitory, underestimated the extent of overheating in rich countries. Demand recovered far faster than supply, hence the supply chain snarls post the Covid-19 crisis. Add to that food and fuel supply shocks in response to the war in Ukraine, and inflation got another boost. The zero Covid lockdowns in China, the manufacturing capital of the world, have not helped.
Global equities have also had a torrid time. Along with other risky assets, equities enjoyed a strong period as markets gorged on freely available and essentially free liquidity provided by central banks. Valuations skyrocketed and earnings came back strongly from their crisis slump. The party ended in 2022. The MSCI World Index was down 20.5% in the first half of 2022. This is official bear market territory, and the jury is still out on whether we have seen the bottom.