The Human Side of Investing

At the beginning of February, and as our latest COVID-19 wave here in Canada began to subside, it looked like finally there was some light at the end of the tunnel and better days lay ahead. This renewed sense of optimism didn’t even make it to the end of the year’s shortest month, as the Russian invasion of Ukraine reminded us that global conflict is ever-present, and peace is a precious but very fragile thing.

It’s early days, but it appears 2022 will be just as challenging as the first two years of this decade. COVID-19 may have been knocked off the front pages for now, but it certainly hasn’t gone away. But it’s not surprising that Ukraine is dominating headlines as Russia ramps up its offensive, and the conflict is having plenty of knock-on effects too, including in global securities markets. For more information on the elevated market volatility this year, please visit our Insight page.

For investors, this year began with inflation and interest rate hikes front of mind, and that remains a huge concern today. Amid concerns for energy production disruptions for both oil and natural gas, global crude oil prices reached a 14-year high*, while the cost of natural gas has skyrocketed in Europe where 40%* of the continent’s natural gas is imported from Russia.

The Bank of Canada has already made its first rate hike of the year—its first since 2018—and the expectation is for more to follow in the months ahead. More hawkish monetary policy may be tempered by the events in Eastern Europe, however, and what the conflict might mean for slowing down the global economy.

There’s clearly a lot of uncertainty right now, which breeds volatility in markets, and that has definitely been the case in recent months. Technology and thematic names have been hardest hit in equity markets, while inflationary worries have pushed bond values even lower. We are also seeing extreme price inflation in the housing market, while elevated food costs, logistical delays on small and big-ticket items, not to mention the price of gas at the pumps are all increasing the cost of living substantially.

Russia’s encroachment of Ukraine has caused some panic in global stock markets, in what was an already challenging investment climate. In such an environment, the job of a financial advisor or wholesaler can be extra challenging. For advisors, a typical day right now probably involves trying to absorb a huge amount of market data and commentaries, while keeping clients abreast of new developments and managing their portfolios through all the volatility. For wholesalers, it’s about ensuring that product positioning can take advantage of these choppy markets, but we also need to balance that goal with recognition of the human tragedy that is unfolding each day.

Canada has a large Ukrainian diaspora, and many of my colleagues have strong cultural and family ties to the country. And given that Franklin Templeton is a global company, I also have colleagues in Poland, Romania, Hungary and Slovakia, nations that are now sheltering hundreds of thousands of Ukrainian refugees. I’d like to emphasize that my thoughts are with our colleagues in eastern Europe, as well as the citizens of Ukraine, and I truly hope a resolution to this conflict and the many other conflicts worldwide can be found sooner rather than later.

*source Bloomberg