Will Sit On Cash Rather Than Buying The Dip: Avendus Capital’s Andrew Holland

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Andrew Holland: Let me take the two, so let’s say it continues a little bit longer than we expected. Then what will happen at some point is increase in commodity prices and food prices, it will have a demand destruction element to it as well because obviously, you know, if you’re studying, say in the UK, and you’ve got 100 pounds as your disposable income, half of that might be going down to new energy bills or food prices. So, you’ll have less disposable income, therefore demand genuinely for products and services will start to fall. So, it will bring commodity prices down at some point and that’s probably why recession is first and then commodity prices fall.

So, I’m a little less worried about that, in the longer term, but I think if things were to normalize and I said normalize, if ceasefire takes place, then there’s two things that will happen. One, commodity price will fall, obviously and then if it’s a ceasefire where either trade starts to happen, sanctions move away, then obviously, we will start to see that supply chain start to improve again, and therefore again, prices will fall. But the fact is that you still have to tackle inflation, it’s not going away.

So you’ll go to the next phase, which is the interest rate environment globally and the Fed have already said 25 basis points. I suspect if you had a ceasefire tomorrow, they would do 50, just to get things under control and get things moving. So, but I think the market will rejoice that in some respects and on a more optimistic view, if you’re in a hurry, true. Then there’s a few things that I think should be two or three big trends which will happen. Governments will do what, they’ll look at their fund reserves and say, you know, we don’t want to fall into this trap in any future date. So, should we be having dollar-based assets, like the US$, so will be into a lower depreciating dollar over time, I am not saying everyone’s going to sell their US$ tomorrow, second, companies and governments and companies are going to say, what is our supply and kind of what’s the problems with any supply going forward.

So, if you think about it, you’d naturally say should I be buying semiconductors from Taiwan and given this the risk of China’s intentions so you’re going to start to look say, we need to have more of this in our own country . Right. You see with Germany defense spending starting, renewables are going to be the next big area because of the oil price and gas prices. Therefore, everyone is going to look at where we have a gap in our supplies, so that we can start filling up at home. So, the capital expenditure for each of the countries towards these areas could be very significant and that will lead to GDP growth going forward.

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