A friend sends me a photo of a packet of pak choi with a large Gucci label on it alongside a rather lovely Louis Vuitton box with some pretty cakes in it.

Later she sends another of some apples and bread spilling out of a Chanel bag. The pictures have, she tells me, come from a contact in Shanghai — where luxury goods companies have apparently been helping out their locked-in VVIP customers by sending them the kind of food it is hard to find elsewhere. (Hermes is apparently good for meat).

The bags the food comes in then have a secondary use — they can be used for a bit of lockdown showing off. Social media is full of the news that some Shanghai residents have been signalling their access (and past buying habits) by using bags from Prada and Chanel to put their Covid tests out for collection by their front doors.

I’m telling you this partly because it is yet another example of the endless adaptability of the corporate sector, but mostly because is a reminder of just how much our world has changed. In two short years Gucci in Shanghai has gone from allowing people to show off via expensive handbags to allowing them to do so via vegetables. Something for you to add to your list of things you could not have imagined in 2019.

For anyone in financial markets, that list is increasingly long. Inflation is high and still rising — even the Bank of England now accepts that 10-per-cent-plus is not just possible but likely. Interest rates are on the up everywhere — with this week’s rise they are now 1 per cent in the UK.

The war in Ukraine shows few signs of ending and of course China’s zero Covid obsession is wrecking the global supply chain, among other things.

At the same time you’d be mad not to worry about corporate earnings: not all cost inflation can be passed on to consumers. Layer all that on to an overpriced global stock market and we should not perhaps be surprised that the S&P 500 is down some 13 per cent this year, the Nasdaq is down 22 per cent and that the MSCI World Index is off 14 per cent. The Goldman Sachs index of unprofitable US tech stocks fell 10 per cent on Thursday alone. Nasty.

That said, not everything is falling in quite the same way. Look to AJ Bell’s list of the top-performing funds in the first quarter of the year and eight out of 10 are either in gold or energy. Look at the list of investment trusts and you will see something similar: the BlackRock World Mining Trust (which I hold) rose 30 per cent in the quarter.

The worst-performing funds on the list are US, growth-orientated and smaller company funds: long-term retail investor favourite Scottish Mortgage (which I still hold with an eye to the long term) has lost 40 per cent of its value in the past six months alone.

The message here seems clear: the market has changed. Rising inflation and interest rates alongside supply crunches in the commodities sector have started to mean that the great winners of the past decade (tech and growth) have become obvious losers — while the losers are turning into the winners.

So here’s the odd thing. Investors appear to be looking at this mix of carnage and return-to-favour and focusing on the wrong bit of it: data from Interactive Investor shows that eight out of 10 of the most-bought funds on its platform in April were passive (mostly Vanguard). 

A year ago that number was four. Interactive suggests that this reflects “greater caution” on the part of investors. But here is my worry — this might be a kind of reckless caution.

We could argue about the pluses and minuses of passive investing pretty much forever. But one thing that most people will agree on is that passive investing is really momentum investing. That is nice on the way up. It is not so nice on the way down.

Passive is not the place to hide from bear markets such as this. Nor I suspect is the still expensive tech sector — yet the most frequently bought investment trust on the platform is Scottish Mortgage.

At the same time April saw the highest outflows on record from UK-focused equity funds (£836mn), calculates global funds network Calastone. That is despite the fact that, due to its mining and oil exposures, the FTSE 100 is one of the few big market indices that has not fallen over the past six months.

Add up the past seven years, says Calastone, and “no new capital has flowed into UK-focused funds”. There is a similar feel in the responses to the latest UBS Investor Sentiment Survey. Investors said they were worried, but also that they “aren’t adjusting their portfolios yet”. This feels a little bit mad. If it is obvious — which I think it is and I suspect luxury goods operators in China would agree — that the financial world of 2022 is a very different one to that of even 2021, why on earth would we not change our portfolios?

You will say that in a market like this nothing is safe — that there is nowhere to go. That’s only partly true. Sure, in a bear market nothing is totally safe — but history tells us that where there is value there is some security. And value is emerging — albeit mostly in the places where you are not investing. Japan is inexpensive (valuations are well below 15-year medians); most emerging markets look OK, with an average forward p/e ratio of 12 times); and the UK looks pretty good — the forward p/e here is 11 times, some 13 per cent below the 15-year median).

Duncan Lamont, head of the strategic research unit at Schroders, also notes that while the US is still expensive on most measures, it is significantly cheaper than it was — think pre-pandemic levels — and that there are huge sector variations: energy and materials are still cheap for example.

Look at all this and you will see that the best thing to do is not to run towards the winners of the pre-Covid world but towards those of the new. There are huge secular shifts under way. Allowing yourself to believe that things will return to “normal” any time soon won’t help.

That means a new focus on value, as it turns out valuations do matter. And perhaps a new look at the fund managers who get this. Look at the value funds on offer from Oldfield Partners — their global equity fund is down a mere 3.4 per cent year to date. Look at Kennox Strategic Value (which I hold). It is jammed with oil and gold — and up 10 per cent in the last three months. And look at Barry Norris’s Argonaut Absolute Return fund, which is up 17 per cent this year, again thanks to heavy exposure to energy, materials and industrials. Finally, given the speed of change around us, you might hunt for companies going out of their way to be creative — like the luxury goods purveyors of Shanghai.

Merryn Somerset Webb is editor-in-chief of MoneyWeek. The views expressed are personal