As investors, it is now more important than ever to have a deep understanding of the key trends and dynamics shaping the global economy. This analysis will delve into the intricacies of the international markets, and illuminate the crucial trends influencing market performance, whilst looking into the current state and future outlook of global financial markets.
Global economic recovery
One of the key trends shaping the 2023 worldwide financial markets is the ongoing economic recovery and growth. As countries continue to gradually rebound from the impact of both the Covid-19 pandemic and the war in Ukraine, economic activity is resurgent, with GDP growth rates projected to improve across various regions. This trend is driven by factors such as increased vaccination rates, fiscal stimulus measures, and pent-up consumer demand. We can expect opportunities in sectors that benefit from economic expansion, such as manufacturing, infrastructure, and consumer discretionary. However, the pace of recovery varies across countries, and this year, there has been an economic slowdown concentrated in advanced economies, particularly the euro area and the United Kingdom[i]. Global slowdowns are not unprecedented and things always bounce back, but long term planning and factoring in the ability to adapt is crucial to companies directly influenced by economic downturn.
Inflation has emerged as a key concern globally in the last year. Supply chain disruptions, rising commodity prices, and pent-up consumer demand drive increased inflationary pressures. Central banks around the world are closely monitoring inflation data, and some have put in place policy responses, such as interest rate hikes or tapering of quantitative easing measures. This means that investors are now seeking strong investment options to offset inflation, as second-round inflation effects are affecting core inflation, particularly in the UK economy[ii].
In recent months, there’s been some positive news: headline inflation in several economies has witnessed a decline, primarily driven by the downturn in energy prices. It’s not all going to plan though, as amidst this backdrop, the prices of food and services have continued to surge rapidly, contributing to an upward pressure on overall inflation[iii]. Notably, core inflation, which excludes volatile components, remains persistently elevated, posing a persistent challenge for policymakers and economic stability.
Monetary policy adjustments
Due to evolving economic conditions, central banks across the globe are engaging in a careful reassessment of their monetary policy stances. Recognising the need to navigate the changing landscape, some central banks have proactively initiated measures to tighten their policies, employing tactics such as interest rate hikes or scaling back asset purchases. 24% of central banks are increasing their gold reserves in the next 12 months[iv]. Gold can offer some stability to clients looking to seek a consistent investment opportunity, as its value has trended upwards over time. Global consumer price inflation continues to hover at elevated levels, albeit showing signs of reaching its peak across several advanced economies, including the United Kingdom. Market indicators suggest that expectations lean towards future policy rate reductions[v]. This delicate balancing act by central banks reflects their concerted efforts to manage inflationary risks while considering the potential for accommodative measures down the line.
Geopolitical factors are an ever-present influence that persist as a formidable force shaping the trajectory of financial markets. Trade tensions, regional conflicts, and political uncertainties are key catalysts that can swiftly trigger market volatility. Extra attention should be paid to major events on the horizon, such as crucial trade negotiations, the ongoing reverberations of Brexit, political elections and significant geopolitical developments unfolding in regions such as the Middle East and East Asia. As these geopolitical tensions continue to loom, they pose a substantial threat to the overall outlook for the global economy. At the Seventy Ninth Group, we are fortunate to have achieved rapid international expansion, and these foundations in local markets allow us to have a broader understanding of global influences and adapt more quickly with partners and colleagues on the ground.
Technology and innovation
In the era of rapid technological advancement, innovation is revolutionising a number of sectors, propelling them into a new era of growth and transformation. The phenomenal rise of digitalisation, artificial intelligence and renewable energy is not just driving investment opportunities but also redefining market dynamics. It is important that as a business we understand these changes, and ensure that we adapt accordingly, in order to move with the times and keep growing. With many years’ experience under our belt, we have managed to successfully navigate through crises, and technological advancement is no different. Between 2015 and 2021, global corporate investment into AI reached $93.5 billion dollars[vi], showing that investors are increasingly honing their attention on companies and sectors that effectively harness these technological advancements and are at the forefront of innovation. As the landscape continues to evolve, embracing the transformative potential of technology has become a priority for those looking to stay ahead in an increasingly dynamic and interconnected world.
Environmental, Social, and Governance (ESG) factors have gained prominence in investment decision-making over the last few years, as sustainable investing is now mainstream. In fact, 89% of investors consider ESG issues in some form as part of their investment approach, according to a 2022 study[vii]. Governments and regulatory bodies are also promoting sustainable finance initiatives, further influencing investment trends. ESG’s popularity is expected to continue growing as investors increasingly recognise the value and potential of responsible and ESG-aligned investing strategies. For example, sustainable endeavours have been at the heart of our Seventy Ninth Resources operation in the Republic of Guinea, where we have built relationships with the local communities. With 36 job roles to support our head office staff in Conakry, we have armed them with valuable knowledge, such as health and safety training, as well as transferable skills they can take on in their career. Our ESG initiatives provide our company with local experience and knowledge, that is invaluable for our operations. It also ensures that our ESG initiatives are carried out with local interests at the core; ensuring that we are really making a difference, not just ticking boxes.
Emerging markets economies are crucial pillars in the global economy, often showcasing untapped growth potential, alluring demographics, and enticing investment prospects. Nevertheless, these markets are not without their share of challenges. Inflationary pressures, currency volatility, and geopolitical risks pose formidable hurdles on their path to prosperity. The International Monetary Fund recently stated, “emerging markets must also learn from one another how best to navigate risks and maintain resilience”[viii]. Therefore, the risk-return profile must be meticulously evaluated when contemplating exposure to emerging markets. Leveraging successful go-to-model strategies and applying them to future expansion is key, we are currently opening in new markets and have the successful grade in our UAE and Guinea businesses to guide us and learn from.
Volatility and risk management
Market volatility remains a focal point for investors, characterised by swift and unpredictable swings triggered by economic data releases, policy decisions, and sometimes, unforeseen events. In this dynamic landscape, volatility presents both risks and opportunities to clients. To navigate these turbulent waters successfully, investors must prioritise diversification, implement effective risk management strategies, and maintain disciplined investment approaches. By embracing these pillars of resilience, investors can confidently navigate volatile market conditions, safeguard their portfolios, and actually capitalise on the hidden opportunities that may emerge amidst the volatility. This is what we thrive on at the Seventy Ninth Group, seeking opportunities where others wouldn’t, and making sure that our years of experience in both the property and natural resource markets have provided us with the knowledge and expertise in order to assuredly navigate these uncertain times.
It’s clear that the worldwide financial markets in the current climate present a mix of opportunities and challenges. The global economic recovery, inflationary pressures, monetary policy adjustments, and geopolitical developments are shaping market trends and will continue to do so. Technological advancements, sustainable investing, and emerging markets offer potential growth prospects. However, investors should remain vigilant, carefully monitor market dynamics, and adapt their investment strategies accordingly. Consulting with financial advisers and staying informed about global economic indicators and geopolitical events are crucial to making well-informed investment decisions in the financial markets.
Being able to adapt and develop models that thrive in uncertain times are what we pride ourselves on here at the Seventy Ninth Group. Hard work, a curious mind and good risk management are the critical components to success in investing in the global financial markets.
[i] IMF blog, Global Economic Recovery Endures but the Road Is Getting Rocky https://www.imf.org/en/Blogs/Articles/2023/04/11/global-economic-recovery-endures-but-the-road-is-getting-rocky
[ii] Financial Times, Investors still need to adjust to a world of higher interest rates Investors still need to adjust to a world of higher interest rates | Financial Times (ft.com)
[iii] OECD, A long unwinding road https://www.oecd.org/economic-outlook/june-2023/#inflation
[iv] Gold.org, 2023 Central Bank Gold Reserves Survey 2023 Central Bank Gold Reserves Survey | World Gold Council
[v] Bank of England, Monetary Policy Report – February 2023 www.bankofengland.co.uk/-/media/boe/files/monetary-policy-report/2023/february/monetary-policy-report-february-2023.pdf
[vi] Statista, AI investment and funding worldwide https://www.statista.com/statistics/941137/ai-investment-and-funding-worldwide/
[vii] Bankrate, ESG investing statistics 2023 https://www.bankrate.com/investing/esg-investing-statistics/