Ruffer Investment Management has warned that markets are now entering a tough phase as liquidity is drained from the financial system.
“This bear market is not over, and we believe that we are entering its most dangerous phase,” said the company in its monthly investment report for July.
Ruffer, which as a firm has €31 billion in AUM, outlines that interest rate futures now price that the US central bank would be cutting interest rates by early next year.
However, the investment company commented that it would be “truly unprecedented” to slow the economy sufficiently enough to bring down the highest inflation rate for 40 years with an after-inflation policy rate that “never goes positive”.
The comments were made in the July monthly update for the firm’s close-ended trust, the Ruffer Investment Company Limited.
In July, the £983 million trust returned 0.1%, while the FTSE All-Share rose 4.4%.
The firm commented such a feat would require a much deeper economic slowdown than 2023 earning estimates imply, which have changed very little.
The monthly report showed that all asset classes showed a negative return in June in the face of possible increased monetary tightening by the US Federal Reserve after a rise in the interest rate from 8.3% to 8.6%.
Yet, the following month investor appetite returned despite another increase in inflation rate and further interest rate increases as investors turned to equity and bond markets.
“One of the pushbacks to the view that a move lower in equity markets was likely, was the already extremely bearish investor sentiment and positioning. A low-liquidity summer rally, sucking in those who can’t afford relative underperformance, should see this box ticked.”
Ruffer said it had made moves to reduce direct equity exposure to protect its portfolio from risks.
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