Following on from an unusual 2020 and 2021, 2022 is already looking to provide some unique opportunities and challenges. With Omicron spreading quickly around the world, and making an entry into the New Zealand community, it is no surprise many investors are worried about how it will affect their investments. The good news is that high vaccination rates, and Omicron’s milder symptoms, have allowed for less onerous restrictions on businesses. Many businesses have also had time to prepare and develop their online and contactless capabilities, allowing them to continue operations throughout Covid surges and community lockdowns.
What’s happening in the markets?
It’s been an eventful start to the year. Tensions have been rising between Russia and Ukraine and central banks around the world are looking to raise interest rates after cutting them to record low levels to support economies that were forced into lockdown. These low interest rates created a lot of ‘cheap money’ and investors benefitted as a result. Global share markets have risen strongly since 2020, with low interest rates helping meaningfully.
Economies have rebounded and we’ve seen inflation rear its head for the first time in decades. Central banks are beginning to respond by raising interest rates which have caused share markets to wobble as investors come to terms with returning to more ‘normal’ central bank policy settings. Most share markets in the developed world have fallen, although have since partly recovered to finish January down around 6%. Context is key though – this just puts share markets back where they were last October
Putting volatile markets in context
It’s important to remember in times like these that volatility is a part of life in long-term investing. In fact, historically it’s typical for share markets to see a 10% decline (similar to what we’ve just experienced) every two years on average. Investing is a long game, which is why it is important to have an investment plan that suits your time frame and your ability to ride out shorter term volatility.