Inflation may be a long way from being licked but the first signs of it peaking have now been seen. Slight falls in the annual rates in both the US and UK this week are in line with our oft expressed expectations of them topping out around the turn of the year. Admittedly these are early days but we fully expect the rates to decline quite sharply as we progress through 2023, with the US leading the way. This should inevitably see markets take heart once they detect the peak in US interest rates – a bit early yet but the rate of increase is now slowing, coupled with still hawkish words from the Fed just to show they still mean business.
The medias talk about the pound’s recovery over the last month or so is really an inverse view of events. As the US led the world in raising interest rates the Dollar strengthened sharply against all major currencies, not just the pound. The initial market anticipation that the peak in US inflation and interest rates might be a little closer than earlier expectations led to a weakening in the Dollar and allowed a recovery in the pound’s value versus it of close to 15%. This may now stabilise for a while but we would expect a further Dollar weakening later in 2023 once the inflation decline picks up speed and interest rates start to soften. The stronger valuation of the pound that ensues will, of course, aid the UK inflation fight as imported Dollar priced commodities cheapen in Sterling terms.
In terms of inflation and interest rates 2023 is beginning to look like 2022 in reverse.
Our 2022 Naps
A bit of a mixed bag so far but here are our views:
KISTOS (Russell)
A year of major fluctuations as gas prices soared then eased back. The mid-year tussle with Serica Energy in which first Kistos tried to tempt them with a take-over offer and then Serica attempted to negotiate terms with Kistos, ended with both throwing in the towel. This led to a sprint in the Kistos share price to 665p, a substantial increase on the tip price of 418p. However, a subsequent softening in the gas price and reversal of the adrenalin rush has seen them slip back to 430p.
The gas price has strengthened in recent days but when I first mentioned this stock two years ago I regarded it as a 5 year investment. CEO Andrew Austin’s last vehicle, Rockrose Energy, made massive returns for shareholders over just such a period and, although we probably shouldn’t expect quite such a bountiful performance second time around, I feel that timespan is needed to see the project fully flourish.
Clipper Logistics (Neil)
Last year’s recommendation of Clipper Logistics was fortunately well timed. The company received a takeover offer in February which was agreed very quickly by the board and finalised in May. The nature of the takeover, part cash and part shares meant the final takeover price roughly equated to 900p per share versus the tip price of 724p – a gain of 24% over a few short months.
Belluscura (Stuart)
Tipped at the start of 2022 at 118p the initial price movement was very encouraging, the share price peaked at over 140p. However, the macroeconomic headwinds struck and any company that was not cash generative was hit hard, Belluscura being no exception. Current price is 74p. The company, of course, had developed its products but had only just begun marketing them. Generally, the news from the company has been very positive although year-end sales targets missed slightly due to a new, upgraded, model being brought into production.
Over recent months Belluscura has announced multiple distribution agreements in the US and, this week, announced its first non -US contract. I believe 2023 will be their year and I think patience is warranted here and will be rewarded in the next year or two.
We will divulge our choices for 2023 in early January. In the mean-time we wish all readers a Merry Christmas and a Happy, Healthy and Prosperous 2023.
Russell Dobbs FCSI
Chartered Wealth Manager
