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Quarter 3 2021: Slow but steady
Investment highlights from 1 July to 30 September 2021
Published: 14 October 2021
At a Glance
- Stock markets slipped in September as supply problems kicked in, but are up over the year so far
- Higher prices and potential interest rate rises worried investors
- Bonds had a challenging time as rising inflation hit their performance
Three developments this quarter relevant to Royal Bank Invest
1) Growth slows but stays solid
The world economy is still growing, but more slowly than initially expected. Supply chain problems, rising energy prices and inflation concerns took their toll.
Our view: The economy should continue to grow into the first half of next year. It may have slowed, but it’s basically returning to more normal levels after a post-lockdown surge – when people rushed out to spend their money.
2) Price rises interest investors
Inflation continues to rise on both sides of the Atlantic, which often leads to higher interest rates. This has worried investors as rising prices and bigger borrowing costs can dent company performance.
Our view: Higher inflation has caused central banks – which set interest rates – to take another look at their plans, but they’ve said any changes would be well signposted and gradual. If we see even higher inflation, however, that could put more pressure on them to act sooner.
3) China crisis
Chinese stock markets suffered during the quarter. A government crackdown on companies appearing to create monopolies, and a major debt crisis at property giant Evergrande, took their toll on an already-slowing economy.
Our view: We reduced our allocation to the emerging markets earlier this year because of the country’s slowing economic growth. This helped shield the Coutts Invest funds from what’s happening in China.
“While supply and labour shortages are feeding into higher inflation, their impact is not expected to be permanent. It takes time for businesses and their supply chains to adjust. And when they do adjust, this year’s shortages could become next year’s glut, bringing prices back down again.”
Monique Wong, Executive Director, Asset Management at Coutts, which runs the Royal Bank Invest funds.
The Big Number
Estimated shortage of HGV drivers in Britain, according to trade association Logistics UK, as fuel fails to reach forecourts across the country.
Managing Your Money
Changes the experts at Coutts have made so far this year include:
Reduce UK government bonds
We reduced our exposure to UK government bonds in July. The UK economy is solid and we believe it will remain so into next year. This can be good for share prices, but makes bonds less attractive as they’re generally more popular in challenging markets.
Sold emerging market shares, bought European stocks
In May, we sold some of our emerging market investments and bought more European stocks instead. Emerging market shares rose in late 2020 and early 2021, but then became more subdued. This was partly due to slowing economic growth in China and a strong dollar, which can be bad for emerging market returns.
Europe, meanwhile, performed well after its vaccination program gathered momentum and the European Commission agreed an economic support package.
When investing, past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.
The degree to which these developments will affect your investment’s performance depends on which Royal Bank Invest fund you hold.
You’ll need to be a Royal Bank customer with online banking, aged 18 – 84 and a UK residence for tax purposes. Tax reliefs referred to are those applied under current legislation, which may change. The availability and value of any tax relief will depend on your individual circumstances.
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