Navigating Volatility During a Rising Interest and Inflation Period

In the ever-shifting landscape of global finance, marked by rising interest rates, inflationary pressures, and geopolitical uncertainties, investors are grappling with the challenge of steering through volatile markets.

Global Issues and Market Impacts

Many global financial markets have experienced heightened uncertainty since 2020. The prevalence of “uncertainty” in analysts’ reports has been an upward trend throughout the worldwide pandemic, rising interest rates, and now the current crisis in Gaza. Recent geopolitical events, including the conflict in Ukraine, have demonstrated their potential to impact global energy markets, notably affecting oil and gas prices. Investors face a turbulent and complex time while trying to anticipate market directions.

Given the global forceful response by central banks to address inflation concerns, the adjustment to rising interest rates has become a focal point. The implications are substantial for investors, especially those in the housing market.

The Bank of Canada’s acknowledgment of an era of higher government debt levels adds complexity. The geopolitical risks, such as conflicts impacting energy prices and supply chains, could contribute to sustained inflationary pressures and influence interest rates globally.

According to Carolyn Rogers, Senior Deputy Governor of the Bank of Canada, even amidst these rising interest rates, “most mortgage holders still expect they will be able to manage higher payments when they renew.” The TD forecast predicts that the Bank of Canada will be cutting rates near the end of the second quarter of 2024, which could relieve first-time buyers — and reduced prices, thanks to increased listings, will also help to level the real estate market. Regardless of interest rates, it’s important to note that housing values are still higher than pre-pandemic levels, which is not expected to reduce to pre-pandemic levels. 

You can’t completely ignore external pressures on investments and markets. However, many investments consider this and make decisions that, ideally, build resiliency into their funds and portfolios. While macroeconomic issues loom, analyzing fundamentals to identify resilient and adaptive businesses.

The Importance of Company Fundamentals

With all of this in mind, you can’t attempt to predict market movements based on top-down economic factors. This strategy is akin to navigating uncharted waters. At Cooper Pacific, we advocate for a bottom-up analysis, delving into company fundamentals when considering an investment. This involves scrutinizing individual businesses, their financial health, and growth potential. In times of market adversity, companies with robust fundamentals are better positioned to weather the storm.

On the other end of the spectrum is a top-down analysis. This method is something we see more when people are looking at investing in the global stock market, where understanding how geopolitical conflict, currency changes, and rate fluctuations can impact global markets and companies rapidly. However, still looking at a well-established company through a bottom-up lens will allow you to better understand if they are positioned to weather the storm of volatility in the long term. 

What to Look for in a Company Navigating Market Adversity

Companies with adaptive management teams are better equipped to navigate through uncertainties. Data-backed and experienced decision-making extends to evaluating the adaptive capacity of management teams. Companies weathering uncertainties possess leadership capable of adapting to changing circumstances, a quality underscored by empirical evidence.

Financial health is a critical factor during turbulent times. For a Mortgage Pool, this means not being tied up in any projects that require a large amount of funding that will not be paid back quickly. We’ve spoken about how much we like land loans, as they mean a quick turnaround time, freeing our team up to reinvest this money and allowing for more flexibility within the fund to accommodate market changes.

Cooper Pacific’s Approach to Adversity

Short and Long-Term Goals

Our approach to market challenges is rooted in a balance of short and long-term goals. While remaining adaptable to short-term fluctuations, we steadfastly commit to our long-term investment strategies, creating stability for our investors.

Victoria-Centric Strategy

Being geographically focused in Victoria allows us to leverage local market dynamics, providing a unique advantage and helping us weather the storm with less volatility than a larger global market. This localized strategy and a global understanding form the backbone of our investment approach.

While global issues and market volatility pose challenges, Cooper Pacific’s resilience lies in our experience and data-driven approach to investing. By adhering to a bottom-up approach rather than focusing on top-down economic factors (macro issues), we navigate market adversity with a focus on consistency, adaptability, and the enduring value of our investments. Our commitment to investor well-being remains unwavering, ensuring stability through the ever-changing tides of the financial landscape. To learn more, get in touch with Jordan on our team.