Investors Doubt They Will Emerge From The Pandemic Stronger. Here’s Why

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Just last week, the Bank of England (BoE) pushed ahead with another interest rate hike – a historic move that marked the first back-to-back increase since 2004. Although the markets had anticipated this move, given that inflation figures are currently forecast to soar to 7pc in April, one thing remains broadly true: investors are fearful about their pandemic recovery.

Indeed, recent research commissioned by HYCM amongst 815 UK-based investors revealed that less than half (43%) were confident they will emerge from the pandemic in a stronger financial position. Not only does this mark a 10% decrease from when HYCM ran the same survey last year, but the findings also uncovered that 36% of investors’ strategies were impacted by the Bank of England’s hike in December, with respondents expecting further rate rises to result in yet more changes to their investment activities.

So, how are investors managing their money, and what other factors have been influencing their outlook?

Omicron and supply chain concerns aren’t weighing heavy

Much has been written in the media about the risks associated with Omicron and supply chain bottlenecks, which have threatened to upend investors’ strategies. That said, HYCM’s research uncovered that these risks haven’t exactly ruled the investor mindset heading into 2022. Indeed, just 28% of investors said that threat of the Omicron variant has caused them to re-evaluate their strategy, while even fewer (26%) said that supply chain issues and labor challenges have prompted them to make any changes to how they manage their investments.

Although fears are understandably starting to diminish about Covid-19 as experts are suggesting that we may be nearing the end of the pandemic – government guidelines are even easing, while central banks are hiking interest rates and reducing economic stimulus – it is curious to see that some investors are potentially overlooking supply chain issues. It is important to note here that current chaos at ports, warehouses, and retailers is likely to persist throughout the new year. Right now, even the likes of Tesla are foreseeing supply chain constraints ahead throughout 2022, with the firm increasing vehicle prices and substituting alternative chips for those that are in short supply to cope with demand.

Thankfully, those investing the most money seem to be tuned into these concerns, as two in five (41%) of those with investment portfolios over £500,000 said that supply-chain issues had prompted them to act.

Investors favor cash savings and stocks

In terms of how these outlooks are translating into action, HYCM’s study revealed that the most common asset classes at present are cash savings (76%), stocks and shares (48%), and property (31%). Just under half (45%) of the investors surveyed said that they would be putting more of their money into cash savings throughout the year, while more than a third (32%) said that they will be purchasing more stocks and shares.

Others were keen to hold their position, as an additional 45% said they would not waiver on their position on cash savings and stocks and shares, while the majority (61%) said they would hold their position on their property investments.

Something worth considering here is the fact that interest rates are rising. As central banks normalize their policies, conditions will inevitably become harder for companies. Existing debts are more difficult to finance, while mortgage payments are higher for consumers – so the future profitability of companies can be hindered. So, with so many investors putting more money into stocks or holding their position, any sharp correction in stocks could result in investor pain. No doubt, this should be kept in mind as the Federal Reserve look at potentially hiking interest rates four times this year, with the Bank of Canada and the Bank of England also expected to have further rate increases in the pipeline, too.

Looking forward

Positively, though, investors were broadly confident about their ability to factor these disruptions into their investment strategy, according to the research.

According to HYCM’s research, 70% said that they felt confident about their ability to manage their finances and investments in the current climate. Further still, exactly one-third (33%) said that they even considered the pandemic as an opportunity to invest in new and emerging assets or markets that stand to thrive in the ‘new normal.