World stock markets are in a very different place compared with 12 months ago. Then, we were on a post-pandemic bull run, fuelled by money accrued when shops and services were closed, with investors and firms alike seeing significant gains. Just a year later, firms and investors have been battered by economic turmoil, driven by geopolitical instability, rampant inflation and rising interest rates.
These have hit markets hard, and led to the US dollar strengthening exponentially against other currencies, alongside other countries experiencing their own market woes. As China grapples with the ramifications of its zero Covid policy, and Europe manages the fallout of the Ukraine war, growth has become a long-distant memory. Even the UK, which for most of 2022 was the best performing index, down only single digits compared to the Nasdaq’s capitulation has since crumbled, thanks to continued political instability and a cocktail of sharp interest rate rises and dogged inflation.
The macro situation, combined with contracting PMI numbers paints a relatively bleak picture across all markets, and not helped by IMF forecasts which predict little growth and widespread recession. But what does this actually mean for firms and investors alike?
We recently came together to discuss this at the EQ Conference, held at the London Stock Exchange, to discuss the most pressing issues listed firms and their shareholders are facing, as we move towards 2023. Perhaps the most striking theme is that the current market volatility is unprecedented - never have we been in a situation where markets and economies are contracting yet employment remains at a 48 year record high, thereby fuelling the vicious cycle of inflation. Therefore, there’s no blueprint to follow and no clear path for recovery. While this does not help certainty, it provides room for innovation, and hopefully pointers from our upcoming EQ conference insight articles may just help firms cement their strategy as we continue to navigate these unpredictable headwinds.
Choppy waters lie ahead, but firms are navigating them increasingly confidently
A firm conclusion from the event was that while the UK is facing unprecedented economic headwinds, it does so with history and experience on its side. While political turmoil might be rife, the Bank of England and company Boards can help bring calm while factors such as inflation, the strong dollar or energy crises rock markets. Economies face cyclical challenges - they have bull runs and bear markets, but companies are learning and putting steps in place to help meet shareholder needs, no matter what the circumstance.
This really shone through in terms of governance. Firms now are holding top teams to account when it comes to environmental commitments, pay or diversity - and when they don’t, investors will. Increasing shareholder activism and institutional support linked to targets mean Boards are more accountable than ever.
In the two years since the pandemic, firms have had to effectively relearn how to do business - due to a dramatic societal shift. In light of this, practices have changed - AGMs are no longer for a small group of attendees, they’re for everyone - becoming more inclusive and providing more access than ever to top teams. Shareholders are also becoming more active, voting with their feet where necessary.
All in all, the changes we’ve seen in terms of shareholder management over the past decade or two has been seismic. Compared with the practices of old, it’s a completely different picture to when the UK last faced similar economic headwinds in the 1980s. While still not perfect, and lots of work still to be done with regard to environmental effects, societal impact and company/Board diversity and make-up, progress is being made, and that should be celebrated.
So what next for UK PLCs? With economic challenges which seem to change on a daily basis, no one can be sure until the UK’s new Prime Minister and Cabinet have been given time to address the issues we’ve discussed at length. It will not be easy, with recession and the cost-of-living crisis biting for many. However, with the correct governance procedures in place and accountability at the core of all decisions, UK publicly owned companies are in good shape to come through the storm.
Shareholder Voice 2022
With new research from 3,000 investors and commentary from leading market experts, the Shareholder Voice Report 2022 offers all-new insights into the behaviour and motivations of retail shareholders.