FSL Chain Mail (20th April 2022)

FSL’s Chain Mail is a regular blog containing links to news articles that we think are worth sharing.

Rampant inflation, anxieties surrounding interest rate hikes and geopolitical uncertainties have shaken investor confidence in recent months, according to Sentix, an organisation providing weekly and monthly assessments of global economic morale. In this edition of chain mail, we examine the thoughts of economists and investment managers, on the important issue of inflation and the effect it may have on the long-term performance of the economy and the stock market.

The latest data for the UK, shows that in March inflation reached 7%, the highest it’s been since March 1992.  The increase is being driven by fuel and energy costs.  The FT, Professional Adviser and Investment Week all offer their views on the continued surge in rate.

Gilles Moec, Chief Economist at Axa Investment Managers, talking to FT Adviser believes that the current supply-side inflation that we are experiencing is “exactly the type of inflation you don’t want because it is not caused by the dynamics within the economy”.  He believes supply-side inflation will have a long-term damaging effect on the economy as “businesses react with uncertainty to the changing economic conditions, and so choose not to expand or invest”.

Paul Craig of Quilter Investors speaking with the Professional Adviser warned investors to “watch the data… diversification, active management and prudency will be key”. Furthermore, Investment Week described the current climate as “dire” and noted that current geo-political circumstances are creating uncertainty amongst investors, “markets and developed economies are continuing to digest soaring inflation alongside the uncertainty surrounding Russia’s war on Ukraine… the truth is that no investors have lived through these exact circumstances”.

The FT spoke with Michael John Lytle, Chief Executive of Tabula, a London-based ETF provider, who detailed investor anxieties surrounding inflation and described it as “an escalating concern among institutional investors”.  Furthermore, in the same article, Ugo Montrucchio, Head of Multi-Asset Investments at Schroders also highlighted that “inflation is at the forefront of the minds of our large institutional clients”.

Matthew Roberts of Fulcrum Asset Management writing for WealthAdviser provides an alternative take on inflation.  He summarises the impact of prolonged, disruptive inflation on asset prices as important and noteworthy.

Jack Ablin, Chief Investment Officer at Cresset Capital Management, speaking with Reuters believes inflation will have a considerable bearing on profit margins, which could have a detrimental impact on stock valuations.  He told Reuters, “I see capital more expensive, labour more expensive, commodities more expensive… Unless these firms can pass these costs along – margins have to decline”.

Becky O’Connor, Head Of Pensions and Savings at Interactive Investor, speaking with the FT Adviser believes individuals can mitigate the pressure of inflation through investing.  She said, “Investing gives people a chance of beating inflation through growth, but with stock markets looking volatile and the geopolitical landscape being so fragile, it can be hard to find the right investments to deliver that growth and the risk of losing even more this way is another factor to consider”.

We continue to monitor changes to inflation and interest rates, whilst trying to understand the potential issues on the market, our clients and their customers.

Look out for our next edition with more FSL Chain Mail links.