The Ukraine crisis remains centre stage this week. President Biden labelled certain acts committed during the invasion as a “genocide” and has pledged another round of aid to Ukraine, including $800mn in weapons and $2.5bn worth of military-grade hardware. In Russia, President Putin announced that the peace talks are at a “dead end” and that Russia’s invasion of Eastern Ukraine is now inevitable. He also denies all claims of civilians killed by Russian soldiers and that it was “fake news” from the US.
After falling to 145 against the US dollar following the invasion, the Russian ruble now trades near 80, within touching distance of pre-invasion levels. Despite this, Russia’s economy is expected to shrink by 15 per cent this year, inflation to reach 24 per cent, and rating agencies have downgraded sovereign debt and expect imminent default. The Russian ruble recovery has come about because of an unprecedented trade surplus on the back of continued Russian exports while imports have fallen sharply (Russia is now the most sanctioned country in the world, overtaking Iran.)The war continues to feed through markets and impacts economic growth across the globe. The World Trade Organisation reduced its growth forecasts to 2.8 per cent (previously 4.1 per cent) and 3.2 per cent for 2023. In the UK, February growth came in below consensus at 0.1 per cent (Reuters forecast expansion of 0.3 per cent), down from 0.8 per cent in January. UK CPI inflation hit another 30 year high in March, reaching 7 per cent – over three times higher than the Bank of England’s target of 2 per cent, putting greater pressure on the Bank of England to increase rates on 5 May. The US also saw inflation hit 8.5 per cent. Our view remains that inflation and growth will return to trend levels over the next couple of years. Despite all the shocks to the global economy this year, our belief is that we will not have a recession in 2022.
Turning to the French election, the gap between President Macron and Marine le Pen has narrowed substantially from their previous race in 2017; the difference was only 4.2 per cent in the first round of the contest. Le Pen has rebranded herself and her far-right party, which included a change of name of the party from National Front to National Rally. Her campaign focuses on the cost-of-living crisis with key policies including cutting the minimum retirement age to 60 (if you started work before 20), scrapping income tax for those under 30, a VAT cut on energy to 5.5% from 20% – plans which are winning over the rural working-class voters in the “forgotten France”. Le Pen is a controversial candidate who has had friendly relationships with the Kremlin and is known to have endorsed Russia’s invasion of Crimea. She has said she would back a “strategic reproachment” between Russia and NATO once the invasion is over. The second-round vote will be on 24 April, our base case is that Marcon will win a second term as French President and we would expect a relief rally in such a scenario, driven by factors such as the dissipation of risks around nationalisations of various industries. Equally, this would give Macron another term to pursue his reform agenda aimed at bringing down public spending and increasing productivity.
China still remains in the midst of lockdown as the Covid-19 outbreaks are becoming harder to control; there is news coming out of the city of Shanghai about shortages in food and medical supplies. For an economy that plays such a crucial role in global supply chains, the ongoing lockdown will inevitably hurt growth in China and the rest of the world.
Finally, in Pakistan, Prime Minister Imran Khan had his call for a snap election invalidated by the supreme court on Friday. He has now been ejected from his position after losing a vote of no confidence on Sunday and has been replaced by Shebaz Sharif. Pakistan’s central bank has just delivered a 250bps base rate hike (the highest since 1996) to defend its currency after falling 5 per cent against the US dollar in the past month.
For the Embark Horizon Multi-Asset Fund range the following notable trades were placed this week:
- Horizon Multi-Asset Fund II: trimmed Threadneedle Asia Fund, added Threadneedle American Select Fund and Threadneedle European Fund
- Horizon Multi-Asset Fund III: trimmed Threadneedle Asia Fund and Threadneedle Sterling Short-Dated Corporate Bond Fund, added Threadneedle American Select, Threadneedle American Smaller Companies Fund and Threadneedle European Fund
- Horizon Multi-Asset VI: trimmed Threadneedle Asia Fund and Threadneedle Global Bond Fund, added Threadneedle American Select and Threadneedle American Smaller Companies
- Horizon Multi-Asset V: trimmed Threadneedle Asia Fund
Craig Nowrie, Client Portfolio Manager, Columbia Threadneedle Investments
Past performance is not a guide to future performance. The value of investments can go down as well as up, so your client could get back less than they invested. Columbia Threadneedle Investments is the investment manager for the Horizon Multi-Asset funds.
Embark Investments is a trading name of Embark Investments Limited. This document is issued by Embark Investments Limited. Embark Investments Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales under company number 3383730. Registered Office: 100 Cannon Street, London, EC4N 6EU.