Public sentiment vs economic realities

Through much of this second quarter, the financial market narrative has been about inflation. Last week the Office for National Statistics (ONS) informed us that inflation as measured by the Consumer Price Index (CPI) rose from 9% in April to 9.1% in May, while the Retail Price Index (RPI) rose 11.7% compared to May 2021. UK inflation-linked benefits for 2023 – including pensions – will be determined by September’s data sets, and means the state pension will almost certainly increase by more than 10%. This will make it increasingly difficult to hold down further pay demands, especially in the public sector. The UK data follows on from the US May CPI data which precipitated the 0.75% rise in US rates.


Has the music stopped for private equity?

The SuperReturn International private equity conference in Berlin was quite the party in recent years. Back in November, the private equity industry’s top executives were beaming at their successes through the pandemic. Historically low interest rates and abundant liquidity ensured a frenzy of deal making by private equity firms – leading to record profits at Blackstone, KKR, Apollo and Carlyle in 2021. But when the same group met again last week, the mood was entirely different. Instead of self-congratulations, this year’s gathering was full of dire warnings: spiking inflation, a looming recession and a slowdown in fundraising. “This is a time of reckoning for our industry,” lamented a sombre KKR executive.


Emerging Market resilience is encouraging

It has been a tough year for investors so far. Interest rates and yield hurdles are rising, and liquidity is draining out of capital markets, putting downward pressure on virtually all asset classes. With a rise in risk premia (the returns investors demand for a given level of risk), riskier assets in particular have been hit hard. So far in 2022, emerging market (EM) bonds have suffered their worst losses since 1994 – with JPMorgan’s dollar-denominated bond index falling 15% year-to-date.

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