What the supply chain crisis means for your investments

A shortage of lorry drivers and supply-chain disruption have threatened to leave supermarket shelves empty this Christmas. 

The crisis could also reverse some of the stock-market gains that have come since vaccines forced the pandemic into retreat. But does this mean your investments will suffer, too? Or is it an opportunity? 

The rising cost of basic materials, plus disruption to manufacturing in Asia, has led to a supply-chain crunch. This is compounded in Britain, where companies also face staff shortages. 

Last week, bosses at Tesco and Iceland warned the shortage of HGV lorry drivers could lead to empty shelves this winter. And High Street names from McDonald’s and Greggs to Costa and Nando’s have been hit by food shortages. 

The panic hasn’t been enough to dent the FTSE yet — with Greggs up 8pc on last month, and the FTSE 250 hitting a record high last week. However, forecasters such as the Centre for Economic and Business Research, predict supply chain disruption could see global economic growth fall by one per cent. 

Given the dramatic events of the past 18 months, it’s no surprise markets remain volatile. At their most basic, they are about balancing supply and demand — with prices rising when demand increases. Last year, for the first time in history, policy-makers constrained supply by shutting down much of their economies. 

And as lockdowns lifted, U.S. central bankers printed trillions of dollars to stimulate global demand. This brought a short-term economic boom, as more cash chased fewer goods. This caused disruption in stock markets, including among major FTSE companies. Rising building materials prices, for example, saw shares in housebuilders fall. Barratt, Taylor Wimpey and Persimmon have dropped 5pc, 8pc and 10pc since April. 

In the labour market, the distorting effect of furlough (plus July’s ‘pingdemic’) have left firms short-staffed. The Bank of England is relaxed about these inflationary trends, predicting that costs will return to normal as the economy settles. It’s slightly different when it comes to the shortage of lorry drivers, which some experts fear will cause longer-term ripples. 

The number of HGV drivers has been declining for years, as older drivers exit the profession. Then came a perfect storm, as Covid, Brexit and tax changes (effectively reducing drivers’ take-home pay) combined to make it even more difficult to recruit. The Road Haulage Association is warning that it could lead to higher food prices in order to pay drivers higher wages. 

Though, judging by the recent performance of the FTSE’s supermarkets and retailers, it seems investors aren’t fearing the worst. Morrison’s, Tesco and Sainsbury’s are currently up 6pc, 9pc and 10pc on last month amid takeover rumours — and showing no signs of slowing. It’s a similar story for hospitality, where pub operator Marstons and Premier Inn-owner Whitbread have risen 2pc and 5pc in a month. 

Greggs is up 10 per cent — even as it struggles to source chicken. Those numbers remind us why investors should be careful about overreacting to panic headlines. The FTSE often falls on bad news, yet these smaller dips (typically around 2pc or 3pc) often cancel themselves out quickly. Sometimes within the same week. 

Long-term data often shows that investors who try to ‘time the market’ — by buying and selling on short-term movements — make less money in the long-run. 

‘Stock markets are driven by news, and food shortage stories are making headlines,’ says Vanguard Asset Management’s James Norton. ‘Food shortages may be worse or less severe than currently anticipated. However, they will be transitory in nature.’ 

Some even see opportunities when shares fall. Look at the popularity of British Airways owner IAG among retail investors. Sector shocks can also provide a chance to assess the diversity of your portfolio, and ensure your money isn’t overly concentrated on any one market. Most retail investment platforms let customers look for different funds by their geographic or sector focus. Investors can also try global funds, which spread their money across several countries. 

These include Fidelity’s Global Special Solutions and Vanguard’s Global Equity Fund. Over five years, the actively-managed funds have turned £10,000 into £19,600 and £20,400 respectively. Other funds are designed to be more defensive, protecting investors’ money in economic turmoil. 

Allianz Strategic Bond Fund, for example, invests in government bonds from major and emerging markets, to produce income even in a downturn. Investors who reinvested the fund’s 2pc dividend would have turned £10,000 into £14,000 in five years. It may provide a useful hedge in an uncertain winter.