Don’t know what you’ve lost ‘til it’s gone

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Oh, the things we used to take for granted. Full supermarket shelves, a tank of petrol when we needed it, cheap and willing workers to pick us year-round fruit and veg. The pre-pandemic, pre-Brexit world seems an increasingly dim and distant memory as we head into what looks like being a discontented winter. For those of us old enough to remember, there’s more than a touch of the 1970s about the headlines. The chart here is another interesting example of what happens when the assumptions of globalisation are questioned. The shortage of semi-conductors - part supply problem, part logistics, part rising demand - is showing up in a widening differential between new and used car prices. The latter is rising faster than the former as frustrated buyers learn to live with what they can get hold of.


Source: Refinitiv, 2.8.21

Past performance is not a reliable indicator of future returns.

Inflation - back to the future

Queues at the forecourts are not the only reminder of the 1970s. Inflation is back in the headlines, although 50 years ago we would certainly have settled for today’s still relatively modest price rises. As the chart shows, the problem is not yet global. The hike in the consumer prices index is most obvious in the US, but there is some early evidence that the Federal Reserve may have been right to call inflation ‘transitory’. Here in Britain, the added problem of labour shortages means we are unlikely to have reached peak inflation just yet. But in Asia and the rest of Europe persistent price rises don’t yet seem to be an issue. In Japan, getting prices to rise at all looks like the bigger challenge. As investors we are right to worry about inflation. It is a tax and the enemy of investment returns. But we’re not Back to the Future quite yet.


Source: Refinitiv, 27.9.21.

Past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment. Investments in emerging markets can be more volatile than other more developed markets.

Energy prices - it’s a gas

Supply chain disruptions, inflation and the fragility of the global economy have all coalesced in one number that every householder in the country can readily understand - their gas bill. It’s been a perfect storm. Last year’s long, cold winter; idled production in the face of a pandemic price slump; Hurricane Ida; high demand for liquid gas in Asia; low Russian supplies; even a lack of wind in the North Sea. Put it all together and the result has been the sharpest price spike in the cost of gas in recent memory. The knock-on impacts have been dramatic. Gas suppliers have been caught between variable wholesale prices and a regulatory cap on retail prices. Not to mention what we’ve learned about CO2 in recent weeks. A by-product of fertiliser production, which in turn is uneconomic when gas prices are too high, it’s used everywhere from food transportation to nuclear power stations to abattoirs. Fragile indeed.


Source: Refinitiv, 30.9.21.

%
(as at 30 Sept)
2016-2017 2017-2018 2018-2019 2019-2020 2020-2021
Natural Gas 37.1 56.0 -54.7 -4.1 432.1

Past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment.

Acknowledgements:

The views in this report are derived from a variety of sources within and outside Fidelity International. They are based on the house view of the Fidelity investment team and other sources. However, the report is written for a UK personal investing audience and the ideas are explicitly linked to the Select 50 list of our preferred funds. We consider this to be the best way for our investors to implement the ideas discussed in the Outlook. I would like to thank, in particular: Salman Ahmed, Jeremy Osborne, Gary Monaghan, Leigh Himsworth, Ayesha Akbar, Jeremy Podger, Neil Cable, Andrea Iannelli, Kasia Kiladis and Natalie Briggs.

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