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Market Commentary - February 2022


· Global equities (-2.7%) fell for the 2nd consecutive month (last seen in 2020) - The selloff triggered by 1.) A higher than expected +7.5% January US CPI print and 2.) Exacerbated by Russia’s invasion of Ukraine.


- These two events appear unrelated on the surface - but Putin’s attack on Ukraine has been mapped out since early 2021… waiting for this period of Western weakness.


- High inflation, slowing growth, peaking asset prices, rising inequality, and cornered central banks… A dangerous combination! Ignited by War!


- Steer clear of risk assets. Risk is NOT linear and increases at the tails.


- Imagine China see an opportunity to take Taiwan - a 25% drop in equities would be kind.


· Market risk is to the downside in liquidity light March – but much will depend on the outcome of the Russian/Ukraine conflict and mid-March’s FOMC meeting.


- Does the Fed use the conflict as a reason to delay rate hikes? Did Biden antagonise Putin into conflict to avert focus from inflationary pressures at home?


- Does the conflict exacerbate inflationary pressures with the feed through from higher energy & commodity prices?


- Long-term inflation expectations have a strong correlation with oil prices. Brent just broke through >$100! Oil price shocks have preceded many recessions.


· We remain cautious and had reduced our net equity exposure to 15% in early Feb – Late January high beta Fund additions (Overstock & Biolife) were sold into strength.


- We don’t feel as confident this time round playing the oversold market bounce given the balance of events.


- Commodity exposure, Gold (+6%) and YCA Uranium (+12%), served as a good hedge – Gold exposure was reduced from 14% to 6% into strength. Almost all of our net equity exposure is in KWEB, as Sands was reduced to near zero at its 200MDA resistance.


- Uranium appears particularly well positioned given the conflict and Europe’s need for less reliance on Russian gas – current sanctions will also take a chunk of supply off the market.


- 79% of the Fund is in cash at present – 58% USD/HKD, 18% CNH, 15% SGD, and 9% GBP.


· The Global Macro Fund delivered a +0.3% return for February vs global equities -2.7% = YTD outperformance rose to +17%.


- We have included a relative performance chart of the Fund vs global equities (down months in black) above the Monthly Commentary section. True to global macro strategy, the Fund has produced most of its outperformance in down market (risk-off) periods – the key to compounding returns.


- Markets may rebound once the dust settles – but the US mid-term elections (Nov22) present another hurdle should House flip Republican.


Take care,

Team SJM


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