Review & outlook
December 2021
As we now put an extremely turbulent year behind us, it seems harder than ever to reliably forecast what the New Year will bring. Even two years on, we are still completely in the grip of the pandemic and there is no end in sight.
The financial markets have so far managed to ride out this crisis very well, however, and last year our assets under management remained on a positive trajectory.
One major problem for the global economy stems from last year’s sharp rise in inflation in many countries. In the USA, prices in November were 6.8% higher year on year; in Germany, they were up by 5.2%. By contrast, inflation in Switzerland remained low at 1.5%. Inflation that remains persistently high over a relatively long period reduces the purchasing power of incomes and forces central banks to fight back and hike interest rates sharply. But after decades of falling interest rates, there are major risks associated with a sudden monetary policy turnaround.
Ever lower interest rates have propped up assets such as real estate, equities and bonds and facilitated public and government debt. If interest rates do rise sharply again, these assets are likely to plummet and private- and public-sector debt will become a problem.
The crises of recent years have prompted governments to implement extensive bailout measures so as to prevent a global economic crisis like that in the 1930s. But this has led to massively higher debt piles. In light of the low level of interest rates thus far, and because they have been lower than economic growth, this debt has hardly been a problem. As interest rates rise, however, so too do debt service costs, which would have negative repercussions, especially amid low economic growth.
If the global economy continues to perform as well as it did last year and incomes rise at a faster pace than interest rates, the debt ratio will fall. If prices, especially energy prices, continue to rise sharply, the bottlenecks in global supply chains fail to diminish and geopolitical tensions continue to mount, however, this will increase the likelihood of imminent stagflation like that in the 1970s, when high inflation was accompanied by an economic slump.
The New Year is only just beginning and it is currently impossible to forecast a reliable direction for the rest of the year. We are therefore aligning our investment policy with our longer-term expectations. Our portfolios are broadly diversified, with our focus increasingly on forward-looking domains such as climate change and green technologies. Our investments in precious metals and temporary hedging strategies also mitigate the risk in the event of unexpected market fluctuations.
A lot has happened in recent years, making it difficult to remain hopeful. But without hope, it is almost impossible for new things to emerge. In that vein, we wish you and your loved-ones all the best for 2022. Stay safe and well.
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