Founder, President & CEO, SIAS
As I write this, the US Federal Reserve has just raised its short-term interest rates for the sixth time this year at its November meeting. The quantum of 75 basis points was the fourth in a row and took the federal funds rate to 3.75-4%.
Markets have undergone immense volatility over the past six months because of these rate hikes, with the US Treasury yield curve now in “inverted’’ mode, i.e., with short-term bonds yielding more than longer-term bonds, a rare phenomenon that many believe signals an impending recession.
These rate hikes have been mirrored elsewhere – with the exception of the People’s Bank of China and the Bank of Japan, most other central banks have been aggressively raising interest rates to combat inflation that has been aggravated by the war in Ukraine and supply chain constraints caused by the COVID-19 pandemic.
The worry today is not just of a possible US recession but a global one. This was raised by the International Monetary Fund (IMF) in its October World Economic Outlook, when it said it expects the three largest economies, the United States, China and the euro area to continue to stall.
“Global growth is forecast to slow from 6 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic’’ said the IMF.
The uncertain and negative outlook means that strong corporate leadership, starting at the Board level, is even more important than ever before. The world faces tremendous obstacles in the months ahead and it is essential that Boards rise to these challenges to ensure their companies stay afloat and profitable.
They should be acutely aware of the risks that lie ahead and factor this into their strategies. They should always bear in mind their stewardship role as guardian of corporate assets and make their decisions accordingly. We have seen ill-advised forays into new ventures without proper due diligence being performed.
The same goes for investors. Before taking the investment plunge, you should recognise the risks that lie ahead and make sure the products under consideration fits their risk profile and investment objectives before buying. Investors should also thoroughly understand all the features of potential investments and if in doubt, seek the advice of licensed financial advisors.
I am confident that Singapore boards, with their high standards of corporate governance will be able to steer their companies safely through the troubled waters that will form a major feature of 2023.
3 November 2022