The market rollercoaster ride continued in February.
Slowing growth in China and renewed pressure on commodity prices, particularly oil, has kept investors on the edge of their seats. Throw in concerns over the health of the global banking system and yet more fear and uncertainty has been added to mix. Many are concerned that these continued deflationary pressures will trigger a global recession.
Are we heading for another global recession?
The chance of a worldwide recession has increased, but this is not our central view. We think developed market growth will continue to offset emerging market weakness. Nevertheless, we remain mindful of what could happen if the global economy worsens from here.
In China, things are likely to get worse before they get better. It is possible that authorities will act to weaken the Chinese currency in the year ahead to help support growth, which will likely lead to even more deflation and financial volatility across the globe.
At Cardano we strive to produce balanced returns across a range of market environments and have increased exposure to assets that will perform well during a recession. If Chinese growth continues to disappoint and the authorities devalue the currency, these investments will prove beneficial.
What does this mean for pension schemes?
The average pension scheme has been negatively impacted by the recent market moves. Not only are equities down around 4% since the start of the year, liabilities have been driven higher as the risk-off environment has led to significant falls in long-dated UK interest rates.
The world is becoming a more uncertain place. However, if you start to consider what may happen to returns in a bad scenario, one can greatly reduce any unwelcome surprises.