Balancing act in a changing world

We are looking towards the end of yet another year of change. So let’s take a look at where we are now. Interest rates continue to increase with policy makers facing a tight balancing act between taming inflation and avoiding a significant economic slowdown. Geopolitical tensions have added to the pressure, with relationships between countries looking as uncertain as ever amidst a backdrop of increasing deglobalisation.

What does this mean for investment markets? Bonds now offer attractive returns, which may have an impact on flows into equity markets, which themselves have benefitted from years of easy monetary policy. In the UK, the gilt market faces evolution following last year’s memorable LDI crisis.

Great innovations often coincide with challenging times. AI is becoming mainstream and expected to significantly disrupt most industries. Health care and energy are exciting markets for investors, with innovations continuing at pace.

ESG considerations remain at the forefront, with an ever-expanding investment opportunity set. Knowing how to price ESG risk is important and often underestimated. We are already feeling the impact of climate change – both policies and physical – which will only gain a greater focus.

We find ourselves balancing on an economic tightrope. Asset owners should look out for new investment opportunities and assess whether their investment strategy is offering adequate rewards for risk, whilst remaining diversified. It is important as ever for investors to remain focused on achieving their objectives and not get distracted by short-term noise.