"Gravity" is about to reassert itself on financial markets as the weight of the recent string of rate hikes filters through to the real economy, Ruffer Investment Company managers Duncan MacInnes and Jasmine Yeo have warned.

"We stick to our increasingly unfashionable belief that record monetary tightening's full impact has yet to be felt," the managers said in their monthly fund report.

MacInnes and Yeo warned that China's re-opening had been "sputtering", as its $60trn property market has struggled after years of regulatory pressure and shaken household confidence.

"We believe fatter market tail risks from China's economy - and politics - will remain with us for years to come. Expect surprises," the managers added.

Ruffer's managers argued that even "America's remarkably robust economy is displaying cracks", pointing to revisions to GDP and payrolls data, a rise in credit card delinquencies and slowing consumer confidence.

Despite developed economies so far dodging a recession, they stated that a decade of low rates and faster nominal GDP growth had "likely deferred - but not de-fanged - the biting point".

Changes to interest rates usually take between 12 and 18 months to pass through to the real economy, and with the Federal Reserve beginning its hiking cycle 18 months ago in March 2022, MacInnes and Yeo expected the full effects to still be on the horizon.

This fear is compounded by the potential for inflation to surge again, as base effects and energy prices "switch from being disinflationary tailwinds to inflationary ones", they said.

If economies fail to return to meaningful growth, this could "raise recession risk by forcing central banks to stay inappropriately tight", the managers explained, while strong growth could further boost inflation.

Despite the market's poor performance throughout the month, the Ruffer trust saw its share price dip 3.4% and NAV drop 0.9% in August, which the managers said was due to its "potent derivative protections" not triggering due to the market decline not being sharp enough.

The fund is down 10.3% over the last year compared to an IT Flexible Investment average of 7%, according to data from FE fundinfo.

"From our derivatives to dollars, yen to bonds, the fund remains well-positioned for the reassertion of gravity in financial markets, and the opportunities that will lie beyond," MacInnes and Yeo concluded.