Opinion Flash | April 2022

The IMF’s spring forecasts confirm an economic slowdown, but not a recession.
The price of energy, raw materials, and metals round out the impact of the war in Ukraine, given that the country is one of the main exporters worldwide, along with Russia.
The lion’s share of inflationary pressures are concentrated in the US, where the Federal Reserve is tightening monetary policy and aims to accelerate interest-rate hikes in 2022 and 2023.
This shift in monetary policy is the result of abandoning a transitory view of inflation in favour of a more structural reality.
In Europe, meanwhile, inflation stems from energy prices, that is, from the war in Ukraine, the duration of which is currently anyone’s guess.
For its part, China is facing a sudden outbreak of COVID-19, in addition to a crisis in the real estate sector.

At the April close, declines in the price of government debt and investment-grade bonds were the deepest in decades.
Bond markets, which are larger than stock markets, anticipate interest-rate hikes: the US Treasury yield nearly hit 3%, with the German Bund at 0.94%.
Higher yields are due to a massive sell-off by investors who aim to protect themselves from an impending rise in interest rates.
These movements reverberate through all markets, including equity markets. The table below shows the movement of the indices at the end of the month.

After an appreciable rebound in the second week of March, April delivered further misgivings about the near-term future.
Of note were the substantial declines in the valuations of certain US tech companies that led stock markets in previous years.

Bond losses have been considerable, indicative of a painful return to a degree of normality after years of “financial repression.”
Nevertheless, unfortunately a recovery in yields does not signify positive real returns (net of inflation).
It is likely that, going forward, the year-on-year rate of inflation will slow, leading us to less arresting average annual levels.
This means that, despite fears of a recession, many investors will continue to invest in equities to protect themselves from inflation that, though persistent, will not likely exceed 4% in the long term.
The initial Q1 2022 earnings publications confirm that companies with pricing power have succeeded in safeguarding their margins through price increases. They constitute the core (75%) of those that make up EDM’s equity portfolios.
The strength of the results presented in late April once again reassures us about long-term investment in an uncertain environment. Comforted by our conviction about the elevated quality of our portfolio, we maintain our positions in the hope that fundamentals will prevail over the current anxiety.