In October we got another new UK Prime Minister. As someone of an Asian background with a strong interest in politics, it is a reminder to me and others that Rishi Sunak becoming UK Prime Minister is a truly historic event. It is defining. It should help others who wish to seek opportunities beyond their professional and personal comfort zones. Whether in the highest roles in finance, investments, or politics, the opportunity to immensely excel is possible with hard work, dedication and exceptional technical knowledge.
Turning to the challenges of investment markets. We expect this quarter to be more positive than the last as investors look to 2023 and beyond and the possibilities of the central bank pausing of interest rate rises – the so called ‘Fed pivot’ – this might not happen until Q1 2023. Markets have been tough this year, very tough, but even in such difficult times the opportunities to add value, advise on the right course of action and then stick to that thesis is there. Act now, for long-term return creation.

The deep fall in investment markets has been fairly indiscriminatory, most equities have suffered. We believe we are closer to the end of this cycle than in the middle. So whilst a perspective is key, we still need to make sense of what has gone on so that we can learn from and also affect changes for better future return scenarios. Inflation is high, it remains high, and it continues to be the key economic policy challenge of our time, together with a political challenge, the ‘proxy war’ in Europe: Russia/Ukraine. The looming recession is within market thinking and pricing, I guess the key uncertainty will be the depth of the recession and overall length.

The covid era continues to still define us. It is interesting to read recent comments about the huge quantitative easing in 2020 that helped to create the current inflationary spiral. Policy mistakes in the past continue to bear relevance now. Even policy mistakes now appear to be critical. The Bank of England has not covered itself with positivity from the handling of the inflation crisis. The hike of 0.5% in late September 2022 may have been too timid and also helped to cause the GBP and UK Gilt volatility we saw in the subsequent days. This policy error was overshadowed by the UK ‘mini budget’ debacle days after the interest rate hike. For investors it is worth noting the Bank of England’s credibility missteps over the last twelve months, and indeed longer if you include quantitative easing. Moving interest rates now to 3% is a sign of catch-up after a slow start. Credibility is very quick to lose and takes a long time to re-establish itself again. The Bank of England might have to go into overdrive to re-establish its authenticity.

Against a very challenging backdrop, we had good performance during the month. It was positive. In what has been a difficult year for investing there has been pockets of returns and optimism. Whilst investment markets may continue to be challenging, allocation towards genuine absolute returns and to areas of ‘core equities’ is a sensible strategy for long-term return generation. This allocation will be held not only for tactical investment reasons but for long-term return generation, therefore core equities plus absolute returns for returns that may be difficult to source going forward.

As ever, we remain flexible and open around our investment strategy. This does not change. We always think and act long-term. We are pragmatic around forward data to ensure we build that into investment portfolios for clients, developing flexibility where flexibility is clear and possible.

More positive times are indeed ahead and could be closer than many realise. We look forward with optimism.

Saftar Sarwar
Chief Investment Officer
Binary Capital Investment Management