MEDIA RELEASE: Concerned about market conditions, Talaria Asset Management co-chief investment officer Hugh Selby-Smith refers to the ancient Latin adage ‘Si vis pacem, para bellum’, which translates to ‘If you want peace, prepare for war’.

“While this has a martial context it works in investment too, with peace being peace of mind and war being conflict with hostile markets. Things may not turn out to be as bad as we expect, but it makes sense to prepare for the worst,” he says.

Investors in global equities seeking peace of mind should prepare by taking steps to protect their capital during the current unfavourable market conditions.

Mr Selby-Smith says what is happening in the global banking sector, notably Silicon Valley Bank (SVB) and Credit Suisse, makes him even more concerned about global equities than before. “Anyone who has been in markets long enough knows that stress in financials is often the first sign of real trouble, and we are currently seeing some significant alarm bells in the global banking sector.

“There are many reasons for banks offering warnings for difficulties on a broader front, not the least of these being leverage. If equity is the sliver of hope between assets and liabilities, it is perhaps the thinnest sliver of all in banks,” Mr Selby-Smith says.

“Even if the failure of SVB and the woes at Credit Suisse do not turn into systemic problems, at the very least they will inhibit activity. Already cautious loan officers will likely tighten their standards further.

“To the extent that individuals adjust their behaviour in the face of these sorts of headlines, they are likely to increase saving and cut spending. Corporates will inevitably look even more closely at their liquidity and raise the required return of any potential investments.”

Mr Selby-Smith says working out where we stand in the current equity market cycle begins with monetary policy because interest rates flow through to the economy with a lag of 12 to 18 months.

Looking at the US, he says the key Fed Funds Rate was first raised in March 2022, meaning its effects are only beginning to bite now, and that since the Fed is still raising rates, the impact will be felt as far out as 2024.

“Our advice is to protect capital above all else because what matters is losing as little as possible when times are bad so as to have as much working for you when things get better.”