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  • Belvedere Group

May 2022 Market Commentary

Updated: Oct 4, 2023

May was an interesting month for global equity markets. Although it’s historically been one of the worst ones, hence ‘sell in May and go away’ there were some good things to focus on, namely the FTSE and S&P 500’s positive return. However, we remain overwhelmingly bearish and see positive trends reversing over the next few months. Here are some of the things that caught our attention.

Inversely correlated to the S&P 500 Index, the VIX ‘fear index’ shows May to have been a particularly volatile month. However, all is not lost. Although fossil fuels have continued to surge with the WTI now trading at 114 dollars a barrel, forward five year expectations of inflation have come down to settle at 2.1%. It seems therefore, that the cure for high prices is indeed, high prices. With two rate hikes down and two more 0.5% increases priced into fed funds futures, the market is starting to abate its expectations of inflation. Echoing the Fed’s recent comments about consumer difficulties is recent data that also shows tightening financial conditions. As such, we’re bearish on consumer discretionary and fintech stocks in the immediate term. We do however, want to emphasize that demographics and long term trends seem favourable. With less fiscal spending and more dependence, taking away the punch bowl of government spending is going to hurt. We anticipate consumer confidence falling even further. Both inflation and war has lead to the worst consumer sentiment reports in 5 years, even below the 2020 coronavirus crash. China China’s premier Li Keqiang stated a warning that China could struggle to generate positive growth in the current quarter. China’s covid restrictions under its zero-Covid policy have led to hundreds of millions being locked down and an abrupt stop to business activity, most famously in the city of Shanghai. Unemployment for 16-24 year olds has risen to 18.2%, and for those aged 25-29 increased slightly to 5.3%, according to China’s National Bureau of Statistics. The effects of economic disruption have left their mark on Chinese borrowing demand, with financial institutions having offered 645B yuan of new loans down, from 3.1T yuan in March and the lowest since December 2017 while missing estimates of 1.5T yuan. Aggregate financing was 910B yuan, the worst level since the start of the pandemic in February 2022, and significantly missed estimates of 2.2T yuan. These are stark credit numbers, which could have a severe impact on businesses trying to stay afloat in an environment of severe lockdowns. A statistic that Li Keqiang stated was extremely telling: ‘Some provinces are reporting that only 30% of businesses have reopened’. The Chinese real estate industry; 30% of China’s total economic output, hit by Evergrande and weakening market demand, was slightly bolstered by a cut of its 5-year loan prime rate from 4.6% to 4.45% by the Chinese central bank in an effort to boost property sales. However, fears of more Chinese property developers such as Greenland defaulting have arisen with S&P downgrading the state-backed firm. Retail sales fell 11% year on year last month, and industrial production declined 3% over the same period. We think the Chinese stance on zero-Covid has been too tight. The reopening has begun, but the damage has already been done. We should expect a harder landing of the Chinese real-estate bubble, and a more cautious view of the Chinese markets. Reopening and a 33-point plan to restimulate the economy has been made, driven by infrastructure investment directives and the like. However, even with pro-growth policies, consumers in China haven’t shown much willingness to spend. In addition to this, the uncertain economic outlook under the backdrop of zero-Covid has resulted in a poor outlook in terms of credit growth. The global food crisis The surge in global food prices and food shortages have been much more severe owing to certain geopolitical events. As of early 2022, both Russia and Ukraine alone provided around 30% of the global wheat supply while in China, the food supply-chain issues have been exacerbated due to the pandemic and lockdowns. However, the global food inflation has damaged emerging markets the most especially as their inflation baskets consist mainly of consumer staples. All the above compounding issues have caused the global food crisis, and we expect the food inflation to sustain in the coming months, and millions of people are at risk of hunger around the world. Though we have no direct positions, we feel it’s to be wary of. Global wheat prices by the ton. Higher food prices are likely to cause social instability and higher prices in non-durable manufacturing. Recession On June the 1st, the Fed is due to reverse the long regime of quantitative easing we’ve had since 2008 and switch to quantitative tightening- in its bid to quell inflation. Although looking back at the damage already done, we must consider whether the Fed has been slow to act in regards to the timing of its decisions toward the current state of the economy. The performance of the 1st quarter of the year has not been particularly favorable to some investors and as usual, the word recession is at the forefront. They are, however, inevitable and should be looked at as a chance to allocate to better positioned companies that can acquire assets on the cheap, as the excesses of the market are culled. Although many indicators like the one above scream recession, the US consumer remains relatively strong and real consumption is still 10-15% above 2019 levels. At Belvedere, we are on the watch for the very real risk and aim to position out clients to leverage the aftermath. Ernest, Taiga, Crystal & Simon Belvedere Wealth Management





*Disclaimer:

The commentary you find on this page is for information only; it is not intended as research or a recommendation suitable to your individual circumstance. Please seek financial advice from a professional before acting on investment decisions.


As is the very nature of investing, there are inherent risks, and the value of your investments will both rise and fall over time. Please do not assume that past performance will repeat itself and you must be comfortable in the knowledge that you may receive less than you originally invested.


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