By Tim Wishart

The current outlook for investors is particularly cloudy, thanks to a range of global macroeconomic, market and corporate factors.

Adding to this unpredictable environment is the inescapable fact that we have never really been here before.

The Covid-19 pandemic, the government response and the various stimulus measures of the last few years have ensured previous historical episodes are at best imperfect, and, at worst, pointless guides.

I have always believed that a wealth manager’s role is to take the most extreme negative and positive outcomes on a range of key factors and weigh up a sensible balance of probabilities.

This helps us to shape our asset allocations and allows us to invest with conviction in specific investments and themes.

So, what are the key factors for investors to consider today? We think there are four key things to consider for any investor out there

who is not sure what to do in the current environment.

In periods of economic strength, investment portfolios typically make positive returns. The weakness in asset markets this year reflects the fact expectations for the economy have broadly deteriorated. It is too early to say with confidence exactly where the economy will go next, but economic growth has essentially stalled, so investors should be considering assets that

are either priced to allow for an excessively negative outcome, or can deliver growth in

an uncertain environment.

To understand the prospect of economic growth, we must try to forecast what will

happen to inflation, as this is currently the pre-eminent driver of consumer spending and corporate confidence.

On the negative side, we are yet to go through the worst of the inflationary crisis in the UK.

The Bank of England has forecast inflation will possibly hit 13 per cent later this year, driven mainly by rising energy and gas prices.

While the UK’s cost-of-living crisis is worse than that being experienced in most places around the world, the general trend of attempting to moderate inflation can be observed across

the globe.

Most importantly, we are starting to see evidence of this in the US economy, where petrol prices have begun to reduce the inflationary problem. However, the unanswerable questions at this time are: how fast will inflation fall; and to what level will it sink?

Over the last few years, central banks have failed to accurately forecast inflation. They also failed to recognise the impact their stimulative efforts had when mixed with government giveaways during the pandemic and a number of difficult years for global supply chains.

They are now attempting to catch up, with the largest rate increases seen for decades in the major developed economies. There is a real attendant danger central banks will go too far

at a time when the economy is in danger

of a massive slowdown.

Asset markets have become too blase in the last few months about the potential risks of significantly higher rates in the period ahead. Investors should be careful about holding too great an exposure to assets with significant interest rate risk, such as government bonds.

Amidst all this uncertainty, how are companies faring? Recent results have been

a mixed bag, but firms have defied the gloomiest of expectations and are relatively sanguine

about their prospects.

This has been a mighty spur behind the recent recovery in global asset prices and propelled equity markets from an oversold situation at the end of June, to a more neutral footing now.

So, what does this all mean? The recent

market volatility is here to stay for the coming months and investors may consider minimising risk in their portfolios for the time being to ride out this storm.

While we are expecting inflation to moderate next year, the questions of when and by how much are still extremely uncertain, and it is difficult to predict what the central banks might do next. Our hope is inflationary pressures subside rapidly, and central bankers do not

have to push interest rates too much higher, although with so many different variables at play, we cannot know how things will play out.

The best course of action for canny investors in this uncertain world is to seek out attractive assets at sensible valuations, hopefully benefiting from long-run trends that can survive this turbulent year and flourish in the future.

Tim Wishart is head of Scotland and the north

of England at Punter Southall Wealth.