Economics

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.

Australian companies’ dividend payouts are down 24 per cent from a year ago, as higher interest rates and cash flow challenges darken the outlook. Payouts from miners decreased significantly, although the dividend picture remains positive for banks.

Australian consumers are showing real signs the largest and longest rate hiking cycle in 30 years is starting to bite. It might be the proof the RBA needs to see that its fight against inflation is working, adding further weight to the theory that rate rises are behind us.

The Bank of Japan has been marching to a different beat than other central banks. While the Federal Reserve, ECB and Bank of England hurried to ramp up rates in a battle against inflation, a deflationary mist lingered over Japan. Until now…

Rapid economic and geopolitical changes have led to a new investment regime in the latter half of 2023, according to the BlackRock Investment Institute. Investors should look to be agile and ready to respond to key themes, with the end of the set-and-forget era key among them.