Investors need to brace themselves for three major headwinds in 2022 and a failure to take action could result in a ‘hammer blow’ to their finances, warns the CEO of a global financial advisory giant.
This is the stark warning from Nigel Green of deVere Group, which has $12bn under advisement, as investors look ahead to another year that is likely to be “shaped by volatility.”
He says: “Headwinds – the factors that weigh down growth and positive returns – are likely to outnumber the tailwinds in 2022 as the world continues to readjust to the post-pandemic era.
“Currently, there are three main issues that investors should be monitoring carefully and, depending on their portfolios, taking steps from which to mitigate the risks.
“First, is inflation. It’s a risk that is a major concern for most investors around the world. Why? Because it kills returns by eroding the buying power.
“Of course, the other reason is that higher inflation usually brings higher interest rates in response from central banks. When rates are hiked, typically consumer and business spending falls, borrowing becomes more expensive, economic activity slows, and financial markets fall.”
Last week, the Bank of England raised UK interest rates for the first time in more than three years in an effort to combat surging inflation.
The move follows the U.S. Federal Reserve a day before setting the stage for earlier, faster interest rate hikes as inflation soars. The U.S. central bank is now forecasting three rate increases next year.
Mr Green continues: “Second, is China. The country’s economic growth is uncertain. Much of the recent slowdown has been fuelled by the wider impact of the collapse of huge property developers such as Evergrande.
“There are now serious worries that this could initiate a worrying credit crunch that would be disastrous for the world’s second-largest economy, which would have global repercussions.
“Plus, the regulatory attack on tutoring, and other sectors such as gaming and ride-sharing, appears to highlight the Chinese government’s new thinking and its increasing push for control of private enterprise.
“Given the state-sponsored attack on private capital, investors will be required to take a leap of faith regarding China’s political strategies.”
And third is, of course, Covid. “Whilst the markets have largely shrugged off the impact of the Omicron variant, there is still no certainty about how it will play out in the longer term. Will it impact economies due to the introduction of new restrictions? Which sectors will be hit the hardest? How will it impact the workforce? How will already shaky supply chains be managed? These are questions that can directly impact investor returns but to which we still have no answers.
“In addition, all this uncertainty about growth, demand and investment is all kicking off as central banks and governments are withdrawing stimulus.”
Headwinds, says the deVere boss, will surpass tailwinds in 2022, which will be “shaped by volatility as the world readjusts.
“However, it’s essential that investors stay invested. As we know, history has shown us that markets tend to go up over the long term.
“But as the world moves ahead to a post-pandemic era, it’s crucial that investors ensure their portfolios are suitably diversified across asset classes, sectors, currencies, and regions, so as to make the most of the considerable opportunities that will inevitably present themselves. A good fund manager will be an invaluable resource.”
He concludes: “Investor portfolios must reflect the future, not the past.”
Oil Prices Recover Slightly Amidst Demand Concerns in U.S. and China
Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts
Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.
Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.
Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.
Despite this effort to tighten supply, market sentiment remains unresponsive.
“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.
Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.
Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.
Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.
Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.
The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.
Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.
Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.
U.S. Crude Production Hits Another Record, Posing Challenges for OPEC
U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.
The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.
The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.
Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.
This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.
While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.
The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.
Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.
Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.
This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.
In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.
However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.
Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.
While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.
The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.
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