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Luxembourg, 12 May 2022 – The world right now presents some investors with an entirely new set of problems: some of the classic strategies built on unequivocal rules are no longer working. “Value or growth, small-caps and mid-caps or blue chips, cyclical or countercyclical – those are no longer the defining characteristics”, said Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM. “Currently, there are really only two categories left: Sectors that are outperforming and others that are coming under significant pressure.”

Many investors are only slowly realising the economic significance of the continuing corona problem in China and the war in Ukraine. Once again, it shows that in our highly interconnected world, more areas are affected than perhaps initially expected. After all, it is particularly in the sectors of absolute staple foods and industrial raw materials that the importance of Ukraine and Russia is far greater than in the total value added. “This is associated with price-driving and inflation-driving effects”, Gerlinger pointed out.

“At the moment, the global economy is in a wobbly, indeterminate phase”, said Gerlinger. After acting as doves for ten years, central banks have almost plunged into their role as hawks. “What previously may have been an overly lax monetary policy now threatens to go to the other extreme”, Gerlinger added. “Where an overly restrictive monetary policy meets a weakening economy, the result is a nasty mix.”

As growth stocks, tech companies, whose share prices have come under pressure in recent weeks, are suffering from higher interest rates. Companies that initially focus on growth and promise high profits only in the future are competing more strongly with bonds than solid dividend payers. In addition, some hardware manufacturers see the raw materials to produce the necessary parts getting under pressure, becoming more expensive or being no longer available at all. No wonder that tech stocks are currently falling out of favour with investors.

Even classic value stocks with extensive global operations are far from being on the safe side. Although they frequently have a great deal of power in setting prices, collapsing supply chains can also make it difficult for them to do business. Small-caps and mid-caps will often do well in friendly economic environments but they are generally not as well suited for severe weather. In the face of a looming recession, cyclicals would have to weaken while non-cyclicals would have to do better, but that is not the case on the markets.

Right now, the markets are deciding almost exclusively on the affect on individual companies or asset classes. Increasing raw material prices, particularly fossil fuels, are causing shares in the oil industry to rise. Traders, suppliers – large or small, tech or down-to-earth analogue – are benefitting. It is a similar story for all other commodities and for food producers. Although this may sound cynical, it will possibly be the most important determinant of stock market performance in the weeks and months ahead.

Additional information is available at www.moventum.lu