The Chinese regulatory crackdown, global energy shortages and long-term stagflation were considered as the most tangible concerns. Of these, Chinese regulations have eased as the country reverts to monetary and fiscal easing, in opposition to the West. Shortages, not only of energy but of other hard commodities, and potentially most of all labour, have dominated over the last quarter and into 2022, expressed through significantly higher than expected year on year rises in inflation. December’s US inflation data not only topped 7% but also was the seventh consecutive month that the change in US prices exceeded 5%. The data has rattled the Fed into talking about several interest rate rises in 2022, if inflation does not stabilise and fall back. This has been taken badly by the market which has fallen sharply since early January 2022.
What implications does this have for the Capital Preservation portfolios? They are down slightly so far this month. Bond investments, though short duration, have detracted, as well as collectives with meaningful holdings in equities, mainly RIT Capital and Trojan. Real assets like infrastructure, gold and property, and inflation-linked gilts have largely held up. The portfolio composition is unchanged over January 2022.