Economics

The tailwinds for disinflation are starting to coalesce across the globe, which should give some central banks the ‘anchoring’ required to start dropping rates by the middle of the year.

It’s a narrow path to a ‘Goldilocks’ economic outcome with steep drops on either side. Any easing of inflation is likely to come with real market disruption, which should lead to more opportunity for skilled active managers to show their mettle.

Interest rates aren’t going back to what the current generation of investors consider ‘normal’ anytime soon, according to Oaktree’s Howard Marks, and different strategies will outperform in the years to come.

Understanding how macroeconomic changes may affect companies’ earnings profiles is key to Ausbil Investment Management’s top-down approach, which lets the fund manager invest with confidence in uncertain markets by focussing on the things it does know, says CIO Paul Xiradis.

Faced with the option of stunting ‘financial stability or growth stability’, the US will only go one way. So investors need to protect against more volatility and inflationary pressure, Alex Lennard warns. But at least it won’t be boring.

Stubborn inflation is forcing central banks around the world to recalibrate, according to Neuberger Berman. Shorter durations remain du jour while yields are strong, but hedging against monetary easing (especially in the US) could be savvy.

The aggressive sell off in US bonds has prompted many to speculate that interest rates have adjusted upwards on a structural basis. But Ninety One investment strategist Russell Silbertson takes a different view.

While Australian household wealth is hitting new records, research shows much of it is held by just a few people, with the richest 5 per cent of Australians seeing their assets grow in value by 86 per cent over the last 20 years.

The inflationary cycle is at a tipping point both in Europe and the US as central governments sweat the lagged effect of rate rises on inflation. For investors, this only inflates the value of quality issuers according to Neuberger Berman.

Financial planners have already started rolling their clients towards fixed income and defensive assets, a panel has heard, as high interest rates and inflation continue to upend investment models.

The current inflationary cycle is an “interesting” one, says Bentham CIO Richard Quinn, with a host of contributing factors that will all take their time playing out.

Ongoing volatility is linked to uncertainty over interest rates, which appears likely to be nearing an end, the non-bank property lending specialist said. Buoyed by a recent $500 million CMBS deal that was more than twice oversubscribed, it maintains a “cautiously positive” outlook for credit performance.