Chantelle Baptiste, equity portfolio manager at Fairtree, says the outlook for financial markets is incredibly unclear, with significant volatility and geopolitical tension.
One of the critical global themes is central bank policy, with the developed world facing higher and stickier inflation.
Central banks have been in denial and on the back foot, which is why there are such violent market moves when the US Federal Reserve (Fed) makes announcements.
“It is concerning that the Fed, European Central Bank (ECB), and the Bank of England (BoE) do not have the appetite to hike rates to a level that will meaningfully curb inflation,” Baptiste said.
“It means we could see sustainably higher inflation for longer and the risk of central bank policy missteps and over-reactions.”
She added that growth would continue to be slow across the developed world, which will weigh on China’s goods demand.
China, a prominent South African commodity buyer, has faced headwinds because its zero-Covid policy has decimated growth.
China’s economic growth has been slow for some time, given the flurry of regulations over the last year, which has negatively impacted the Chinese property market.
“This is very concerning because property development is important for China, making up a third of the Chinese GDP,” she said.
“The governing party is trying to limit the pain by giving fiscal support, but not enough is being done, and China continues to shut its economy down.”
The latest Covid shutdown victim is Chengdu, where 21 million people had to self-isolate.
It will be critical to see what happens in November after Xi Jinping, the general secretary of the Chinese Communist Party (CCP), is made leader for life.
“He might be far more aggressive with policy to accelerate growth, but we believe China has bottomed and will look marginally better going forward,” Baptiste said.
Another global economic challenge is geopolitical unrest which is set to rise as key relationships forged over three decades of globalisation are unwinding.
China made cheap goods which the rest of the world imported and sold for super profits. Russia produced cheap gas, which the Eurozone bought, made goods with, and sold at a super profit.
“This is ending, and the result will have many second-round impacts, some of which are being felt now with energy prices soaring and inflation at multi-decade highs,” Baptiste said.
Some of the impacts will be impossible to predict. “The East is challenging the West and arguably is succeeding,” she said.
“Globalisation needs a peaceful environment to function – which we don’t currently have – and deglobalisation is going to be very inflationary.”