Inflation is a pressing topic for many investors. In the latest Fullerton Investment Views, we take a closer look at whether inflation is poised to make a comeback amid rising growth expectations, and the potential implications for risk assets.
With commodity prices surging, investors are concerned that inflation could shock on the upside. Meanwhile, bond yields have increased rapidly and equities have fallen.
Investors may worry that their real returns could suffer, and the prospect of tighter monetary conditions could threaten equities.
Investors’ best protection is a diversified portfolio as most risk assets may potentially provide solid inflation protection with returns much higher than global CPI inflation.
The bigger test, over the next few years, is whether developed economies can continue to grow strongly with higher real yields.
We believe economies should be able to navigate toward higher interest rates due to credible commitments by global policymakers to give more support if growth slumps; furthermore, economic activity post-COVID seems more resilient without having to heal itself from the painful debt deleveraging of the last 2008-09 crisis.