The realisation that inflation will persist at higher levels and for longer than originally expected has driven a difficult and volatile start to the year for global markets. These inflationary pressures were instigated by the unparalleled monetary and fiscal stimulus implemented by central banks in 2021 and compounded in the first 4 months of 2022 by Russia’s invasion of Ukraine, inflated energy and food prices and ongoing supply chain disruptions in China. As a result, global inflation accelerated through the first 3 months of the year, reaching 7% in the UK and 8.5% in the USA.
In response to the inflationary pressures, central banks have had little choice but to respond aggressively to bring down prices. The US Federal Open Market Committee continued their rate hiking cycle in May by raising rates by 0.5% at the start of May (their largest single increase since 2000) and are expected to hike rates by the same quantum at each of their next two meetings (mid-June and end-July). This trend has been mirrored in other economies such as the UK where interest rates are now 1% – the highest rates have been since 2009.
However, global economic prospects have worsened significantly in the first 4 months of 2022 and the IMF is now predicting global growth of just 3.6% in 2022 and 2023 (down 0.8% and 0.2% respectively since their January forecast). As a result, the risk of “stagflation”, where persistently high inflation is coupled with stagnant demand in a country’s economy, has greatly increased. Stagnant growth, along with increased debt servicing costs and elevated inflation will put pressure on global consumers in the months ahead.
The success of companies in 2022 and beyond will likely be determined by whether they are able to continue to grow earnings and margins in an environment in which consumers are coming under increasing pressure. Such attributes were evident in Coca-Cola’s 2022 Q1 results, with organic revenues increasing 18% (driven by 11% volume growth and 7% price and product mix) and operating income increasing 24% for the quarter. As you can see from the graph, Coca-Cola has been able to continue to grow its dividend payments to investors throughout a range of global macroeconomic challenges.
Coca Cola’s market leadership, balance sheet strength and ability to maintain profit margins have been integral to its success and, looking forward, position them well for the challenges ahead. These characteristics are always a key component of the companies within Marriott’s international portfolios and are likely to be particularly important in the next stage of the economic cycle. While it is clear that the global economy is moving into a significantly more challenging period, we remain optimistic that our income-focused investment style, with its focus on quality, resilience and dividends, will continue to produce good outcomes for investors in the months and years ahead. As a result, in line with the increase in offshore exposure limits, Marriott has taken the opportunity to increase its exposure to these high-quality international companies.
These portfolios can be accessed via:
Marriott’s offshore share portfolio (International Investment Portfolio)
Marriott’s international unit trusts (Using your annual individual offshore allowance of R11 million)
Marriott’s local feeder funds which invest directly into our international unit trust funds (Rand-denominated)