Investment predictions: Temporary inflation, permanent growth & stabilised interest rates

The report looked to give an investors expert insight into possible economic trends for the third quarter of the current financial year. The third quarter will likely see the global economy continue to bounce back after a severely turbulent year during the pandemic.

The economic rebound, anticipated since mid-2020, is well underway due to a number of driving factors and shouldn’t be affected by the Delta variant, which should see investments grow and stabilise.

The equities market is looking increasingly positive, more so than bonds, and gradual gains in corporate finances should see share prices continue an upwards trajectory.

A combination of businesses re-opening, demand for all consumer market offerings at an all-time high and savings accumulated throughout lockdown has caused encourage the strong economic rebound which is set to grow up to six percent by the end of the year.

In first-world economies, the market growth will recuperate last year’s three percent decline and is unlikely to be affected by the spread and subsequent consequences of the Delta variant as vaccine rollouts continue to be successful in these areas, Kingswood claimed.

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Emerging economies that have struggled to deploy vaccination programmes may see a larger impact on their economic growth due to the Delta variant.

The first quarter saw UK and the Eurozone in general benefit from economic growth as high as 21 percent and eight percent respectively.

Among this astronomical growth is the fact [growth] will begin to slow soon, as the reopening loses its appeal and fiscal/monetary boosts disappear – so investors should be wary of expecting the same level of returns seen in the second quarter, Kingswood advised.

A big shock to investors, companies and consumers altogether has been the spiking inflations rate far beyond predicted growth, compounded by shortages in supply chains which has been detrimental to some industries.

UK headline inflation currently measures 2.5 percent and is expected to hit four percent by the end of the year, but a saving grace is its anticipated retreat in 2023.

Equity markets continue to offer a surprisingly good investment outlook, Kingswood said, as recent months have seen equities rise by 15 percent year-to-date in local currency terms. This is once again connected to the increase in corporate finances and the global economic rebound.

The sudden burst of activity and outperformance in November 2020 for the stock market, a result of the optimism surrounding the vaccine, has all but completely receded, although the report did note that future markets should see a strong return rate.

Fixed income investments, unfortunately, appear to have a far more pessimistic prediction after the recent fall in government bond yield despite the surprising rise in inflation.

However, corporate bonds may fare a little better although returns seem to be capped at around 1.5 percent.

Kingswood’s current expectations and positioning on the global market are that they remain in a pro-equity stance, specifically towards small and mid-cap companies, as equities become the more favoured investment area for the UK.

Another factor to consider in the UK’s growing equity favourability is the ever-creeping caution on US equities, which have recently recaptured last years’ underperformance but also created a sizeable gap 40 percent gap in valuations.

The regulatory and taxation environment in the US has become increasingly unsavoury for investors as President Biden intends to raise the tax rate on corporations, dividends and capital gains.

Kingswood has also become less averse to Europe due to the speedy vaccine rollout but are still concerned about the underlying structural defects in the Eurozone.

The report added that China’s vast domestic equity market would provide perfect pickings for active stock pickers, a big factor in driving favourability for the Asian emerging markets strong long-term growth.

In the realm of thematic investments, Kingswood indicated that it would be beneficial to retain long-term technology and artificial intelligence investments despite possible short-term setbacks and losses as the growth model in this sector has proven resilience.

Another potential up-and-coming growth area is climate change as governments, companies and investors all seem to pivot towards addressing these issues alongside the cheap valuations.
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