Key points:
- The Scottish Mortgage (SMT) share price has fallen 45.6% this year.
- SMT shares will likely recover when central banks stop hiking rates.
- However, this is not expected to happen until next year.
The Scottish Mortgage Investment Trust PLC (LON: SMT) share price has fallen 45.6% since the year began, and many wonder whether the former high-flying investment fund will ever recover. The short answer to this question is a simple yes; the SMT share price shall recover sometime in the future.
However, let’s explore why the investment fund will likely recover over the long term. First and foremost, the fund holds stocks in countries other than the UK; hence, it is mainly insulated from the worst shocks in the UK economy. Therefore, to properly assess the recovery potential of SMT shares, we have to look at the stocks it holds.
Also read: The Best Undervalued Stocks To Watch In 2022.
SMT holds shares in many growth and technology stocks, such as Moderna, Tesla, Meituan, Tencent Holdings, Amazon.com and NIO Inc. From this list, we can see that these companies were doing well before and during the COVID-19 pandemic but have fallen significantly this year fueling the decline in SMT shares.
However, these stocks will likely rally higher when the global economy is recovering as record-high inflation falls and central banks halt their aggressive rate hikes. However, nobody can predict the future with any degree of certainty, given that the war on inflation is far from over.
Recently, the OPEC+ cartel cut their daily oil production rates by 2 million barrels, triggering a surge in oil prices due to the reduced supply. As a result, many are bracing for higher oil prices during the peak winter demand season, which could affect consumer spending as high energy bills eat into consumers’ disposable incomes.
Leading central banks such as the US Federal Reserve are still within a rate hiking cycle, with the Fed expected to hike rates at its November meeting. The Bank of England and the European Central Bank are also expected to raise interest rates in November.
The high-interest rates will continue to drag down the growth stocks held by SMT, but many expect all the leading central banks to reverse course in 2023 as inflation peaks and economic growth stagnates. We can then expect SMT shares to rally when the above happens.
*This is not investment advice.
SMT share price.
The SMT share price has fallen 45.58% since the year started. Is there hope for a recovery?