All English-speaking Central Banks seem committed to higher official cash rates. This interest rate tightening cycle began in New Zealand on 6 October 2021, and six months later Australia was the last to blink, on 6 April 2022.

On average, the five Central Banks in the table below have increased their official cash rates on nine separate occasions.  While Australia is the exception, at 3.35 per cent, due to its relatively high proportion of mortgagees on variable rates of interest, official cash rates range from 4.00 per cent (UK) to 4.50 per cent (USA and Canada), the highest level since the Global Financial Crisis got going in 2008.

Given the English-speaking Central Banks were generally late to the party in terms of fighting inflationary expectations, especially in the context of rising global gas, electricity, food, and fertiliser prices attributable to the Russo-Ukrainian War which commenced on 24 February 2022, investors may become nervous the Central Banks could equally be late to the party with further official cash increases – especially given inflationary expectations seem to have passed the worst. To what degree will Central Banks tighten further, ensuring the market’s concern shifts from “peak inflation” to “recession”?

At the time of writing, markets seem to have taken the recent increase in official cash rates in their stride, hoping they will soon be coming to an end, and many stocks which were pummelled in 2022 have recorded an extraordinary bounce so far this year.  In examining a handful of examples below, readers must be very careful when dealing with “percentages”, particularly after a substantial decline.

While investors will read about the sharp share price rallies over recent weeks, it is important to maintain context. For example, when a company, such as Meta Platforms, loses 64 per cent of its value in 2022, and then rallies 57 per cent in the first five weeks of calendar 2023, it is still down 44 per cent over the 57 weeks (to 3/2/23) under review. Don’t forget: if a stock price declines by 50 per cent, it then has to appreciate by 100 per cent for the investor to get his/her capital back!

The Polen Capital Global Growth Fund owns shares in Align Technology, Amazon, ICON. The Polen Capital Global Small and Mid Cap Fund owns shares in Align Technology, Floor & Decor, Revolve and Temenos. This article was prepared 07 February 2022 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade these companies you should seek financial advice.