‘New world order’ in markets leaves investors nowhere to hide

CREDIT SUISSE has warned of a “new world order” in financial markets after central banks began aggressively ramping up interest rates.

The Swiss lender said markets had been caught in a “perfect storm”, with surging inflation, higher interest rates and the war in Ukraine all taking their toll on investor sentiment.

Michael Strobaek, global chief investment officer, said this storm had intensified in recent days after the Federal Reserve announced its biggest interest rate rise since 1994 and the Swiss National Bank wrongfooted markets with monetary policy tightening.

In a note to clients he wrote: “Both equities and bonds have corrected, which means that investors have had almost no place to hide. Even well diversified portfolios have taken a hit.”

He added: “This represents nothing less than a reset of the currently still low interest rate level to a new, higher level globally. During this adjustment, financial markets look set to remain volatile as the reset brings with it clear uncertainty and, of course, a much less accommodative monetary policy.

“Among the questions investors have to ask themselves is how long the rate hiking cycle will go on and how deep the economic slowdown will be.” But Mr Strobaek said investors should not lose faith, adding that it would be “ill-advised” to exit markets now.

He said: “It is very easy to throw in the towel when market turbulence and perceived risks reach new peaks. Yet, I firmly believe that the situation is not as bleak as the market currently prices.

“One of our fundamental investment principles is that ‘time in the market beats timing the markets’. This, in my opinion, applies to the here and now.”

It came as a $3.6bn (£2.9bn) fund manager told investors to brace for a long bear market, warning the Federal Reserve was “orchestrating” a recession.

Richard Hodges, manager of the Nomura Global Dynamic Bond Fund, said: “The Fed is solely focused on reducing inflation (for now) and is orchestrating a recession; they aim to rebalance the differential between demand and supply by reducing the former.”

But he also struck an optimistic tone for recovery and urged investors to remain patient.

He said: “When the rate hikes stop, and investors can once again value risk with some certainty, cheaper asset prices across credit and sovereign bond markets alike will represent an incredible opportunity set for investors seeking attractive returns.”

‘‘One of our fundamental principles is that “time in the market beats timing the markets”’