Invest-ability bulletin 05/01/22: Off With a Bang

Two trading days in and 2022 is already getting ‘interesting’

All I want for Christmas…

I hope everyone had a nice Christmas and NYE, despite yet more strange circumstances. An outbreak of Covid in my extended family meant another year of straightened festivities in Suffolk – a fitting end to a difficult year, and I’ve now caught Covid anyway despite seeing barely a soul for a fortnight.

Nevertheless, effectively two weeks of isolation has given me lots of time to rest, read and think, not necessarily in that order. I’ve especially enjoyed reading all of your year-end reviews on Twitter and elsewhere, prompting me to compile some of the learnings in one place, which you can read for free. Keep an eye out for my reviews of the Invest-ability portfolios on the site tomorrow.

As you’d imagine I’ve also been reading lots about the markets and what to expect next year, including the last two instalments of our own look ahead – Christine’s been looking at China and Japan to round off the series. I wish it were possible to conclude that after two years of madness 2022 will see a return to business as usual. But I have read enough history to know there is no such thing, and the chances are high that more trouble lies ahead, especially what’s coming next on the inflation front with the ever-rising cost of food and fuel. As Money Week editor John Stepek observes, “nothing else causes social upheaval like the cost of those two going up” – watch out for Kazakh style protests coming to a Tesco near you soon.  

Beyond inflation, the most obvious concern is what the next phase of the pandemic might look like. Everyone may be getting Covid for Christmas, but few – including my family and I – have been especially ill as a result of what I can only assume is omicron, and so we might be hopeful that the worst is behind us despite soaring infection rates (a million a day in the US and rising). A common trajectory of viruses is, after all, that they mutate to become more easily spreadable but less harmful. Fingers crossed.

That view was clearly shared by the market, which put a rocket under travel shares in the first UK trading day of the year, not least British Airways owner IAG which has climbed just under 15% so far this year. Personally, I’m not willing to place any bets that we have seen the last of the virus’s effects. And I’ll still be giving flying pension deficits a miss when it comes to my own portfolio, or any other kind of mass transportation for that matter – moving people around is an even more horrible business than moving stuff around, as a wise analyst once reminded me. It’s also very dirty, and if we are truly about to move into an ‘eco age’ then flying for fun is surely at the top of the hit list, as it is in France – electric planes are a long, long way away.

Over in the US, it was electric cars that took the opening day spoils – Tesla’s shares climbed 12% on news that it had beaten delivery expectations. But the ebullience did not last long – a day later and the Nasdaq began to sell off again, led by Chinese tech stocks but with Tesla also giving back half its gains. This kind of volatility isn’t really what you’d expect from a trillion-dollar business, which only underscores my belief that Tesla is more cult than company. Plus its cars aren’t anywhere as pretty as this little beauty from Mercedes, which will be making its way from concept to road in short order.

While we’re talking Tesla, we might as well talk Scottish Mortgage which owns a substantial chunk of it. The trust has had a torrid month or so that shows little sign of abating, with its shares down another 3.25% today and a fifth from their late November peak. I talked about why I wasn’t keen on buying its shares a few weeks ago, opting instead for the very boring City of London Investment Trust, and if anything the backdrop has got worse for the bleeding edge trust, not least the continuing regulatory crackdown against ‘anti-competitive’ technology companies in China.

Given that the success of large technology companies anywhere seems to be built mostly on anti-competitiveness, I wonder how long it will be before we see some proper acknowledgement of the troubles there from the trust’s managers. I like the trusts ethos but would really like to hear their thoughts before I even think about ‘buying the dip.’

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