Q3 2021 Outlook

30 September 2021

We still believe that the global economy can continue to recover, albeit much of the developed world appears to be at or just past the peak rate of growth.  The easing of restrictions has continued, however, as expected, a number of those countries that were first to reopen are now beginning to see the rates of their recovery start to slow.  The slowdown in growth is largely because manufacturing boomed last year and now simply the pace of growth is decelerating.  That said, manufacturing PMIs are (mostly) still above 50, but have fallen from their peaks. Supply-chain bottlenecks have also dented production, whilst consumers will inevitably spend less on durables and more on services, as lockdowns are eased further.  The Delta variant continues to pose a risk to the global outlook, but for developed economies this is more likely to be in the form of supply constraints rather than further lockdowns given the successful rollout of the vaccine.  While uncertainty has increased, it is unlikely to derail the recovery.


For financial markets, the recent economic data and reporting season confirmed that the initial, and perhaps easiest part of the reopening is now behind us so while we still see room for further upside in risk assets, greater selectivity is likely to be required moving forward.  We will continue to closely monitor the inflation number (CPI) and credit markets for any meaningful rise in yields.  This will inevitably have an impact on equity markets, particularly growth stocks and will shape monetary policy in the medium term.  Although we do not expect any tightening of policy in the near term, the time horizon for any increase in interest rates has been brought forward following the latest inflation numbers.


At this stage, we do not advocate any change in strategy but continue to look to invest in high quality businesses, many of which have natural defensive characteristics, which should perform well even in times of heightened volatility.  We continue to believe equities currently offer better risk adjusted returns when compared to other asset classes but given the unknowns, investing in a well-diversified portfolio, with a focus on various long-term trends, remains a sensible approach.

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