Baillie Gifford  

Baillie Gifford: 2022 was a 'humbling' year for growth investors

Baillie Gifford: 2022 was a 'humbling' year for growth investors

The last year might be one to forget in its entirety with it being a humbling and salutary 12 months for growth investors, the director of marketing and distribution at Baillie Gifford has said.

James Budden told FTAdviser growth stocks have been “ruthlessly re-rated by Mr Market”.

“Early in 2022, we saw a rare value rally as the winners of the great Covid escape were favoured with fossil fuel firms, traditional pharma and finance making a comeback,” he said.

Article continues after advert

However, then Putin invaded Ukraine, sending Europe into chaos and triggering spiralling energy costs which were then further exacerbated by supply chain issues post-Covid and the promise of monetary tightening and interest rate rises emanating from central banks. 

Budden said all of this, combined with China’s “obsessive” zero Covid approach has led to an ongoing persecution of growth stocks where share prices oscillate wildly according to news flow, whether it is “important or trivial”.

“For instance, in April Netflix’s share price fell 40 per cent on one day when it announced it had lost 200,000 subscribers out of 200mn,” he said.

Company share prices have been “savagely” adjusted due to high levels of inflation, as investors are not prepared to look out beyond the near term, Budden said.

“This narrative has continued as we pass into a kind of depressing stalemate illustrated by the tragically turgid situation in the Ukraine and generally grim politics in places around the globe.”

Budden highlighted the UK as “a particularly cringing sideshow”, down to political mayhem.

“In one sense, this does not matter much to the global investor as our stock market carries relatively small weight in global indices. 

“However, the Truss trauma, its gilt crisis, and the subsequent embracing of recession by her successors will leave UK investors short of funds which affects us all in the fund management industry.”

Labour slogans

“Things can only get better,” Budden said, “But when is the question?”

Beware those who think they know the answer, he cautioned, as nobody can possibly know what is going on in the heads of Vladimir Putin and Xi Jinping.

The inflation issue, and when it will begin to ease, is only marginally more easy to predict.

Pundits point to a peak in the US in the foreseeable future and a subsequent pivot on interest rates, Budden said. 

“However, there seems little prospect of that sort of immediacy in Europe and the UK.”

Emerging markets appear “more exciting”, despite the uncertainty surrounding China, and the future is rosier for Asia where inflation headwinds have not been blowing as strong.

“Asian economies are not just growing in a domestic sense but also leading the world in key areas – Taiwan in chips, Indonesia in nickel, South Korea in batteries and China in solar energy.