Key points:
- Scottish Mortgage (SMT) shares have fallen 47% in 2022.
- Multiple factors have driven SMT shares lower in the past few months.
- So, is the situation about to change. Read on to find out.
The Scottish Mortgage Investment Trust PLC (LON: SMT) share price has fallen 47% in 2022, and for some investors, the pain may be too much. As a result, many are wondering what comes next for SMT and whether there will be some relief for shareholders soon. Unfortunately, SMT’s future does not look promising for the following reasons.
Also read: The Best Shares To Buy Now.
Firstly, the investment trust holds a significant number of growth stocks that are pretty unpopular among investors. These stocks have borne the brunt of this year’s market selloff as investors prefer value stocks over growth stocks.
The combination of high inflation, rising interest rates and Chinese lockdown are some of the primary reasons SMT shares have fallen. In addition, the trust holds shares in leading Chinese tech stocks such as Tencent, Alibaba and Meituan, which have come under significant regulatory scrutiny and pressure from the Chinese government.
On the other hand, the company owns some of the leading US growth stocks, such as Tesla, Moderna and NVidia, which have fallen significantly driven by changing investor preferences. Most growth stocks rely on cheap lending rates to remain profitable while benefitting from robust consumer spending.
Companies like Moderna have suffered due to the lower demand for COVID-19 vaccine in most developed countries that have vaccinated a vast portion of their population and have relaxed many of the restrictions put in place to combat the spread of the coronavirus pandemic.
Tesla’s production capacity has been hit hard by the lockdowns in China, which have made it produce fewer vehicles in the past two months compared to previous years. The EV manufacturer is also facing significant competition from Chinese firms that sell much cheaper cars.
Investors hoping for some relief soon may be disappointed since the Federal Reserve and other leading central banks are still hiking interest rates. Furthermore, rising inflation has also constrained consumer spending, making it hard for most businesses to generate a profit.
Therefore, there is likely more pain ahead for SMT investors. As a result, I wouldn’t buy SMT shares until the fundamental economic picture changes.
*This is not investment advice. Always do your due diligence before making investment decisions.
The Scottish Mortgage share price.
The Scottish Mortgage Trust share price has fallen 46.96% in 2022 and could be headed lower.