Tabula : Speaking at an event organised by fixed income ETF provider Tabula Investment Management, Ian Harnett, Co-Founder and Chief Investment Strategist at Absolute Strategy Research, said there are multiple factors fuelling a possible rise in inflation.
Michael John Lytle CEO of Tabula Investment Management
These include loose monetary and fiscal policy, the world economy moving from globalisation to autarky, and a significant, predicted increase in capital expenditure over the next decade.
He also warns investors not to overlook the growing strength and influence of China on the global stage, with its policies and actions increasingly affecting global markets. He says that in many areas, China is now more influential than America and is winning the battle for global dominance.
When discussing inflation, Harnett says monetary and fiscal policy in the US are among the most accommodative since the 1950s, and they are likely to lead to asset price inflation.
He also cites a growing focus on national security. As countries become more focused on issues such as bio-, food-, cyber- and financial-security, a desire for countries to be self-sufficient will likely push prices up. The issue of rising prices due to a shortage of certain food types in the UK following Brexit is one example of this.
The third major trend driving inflation, according to Absolute Strategy Research is a predicted huge increase in capital expenditure from companies over the next decade. It says that under an outsourced business model companies have dramatically cut back in this area over the past decades, instead focusing on providing returns to investors. But ASR expect capital expenditure will now increase dramatically, driven by a desire to ensure better resilience to supply chain uncertainty. In addition, we will see expenditure from nations developing new infrastructure, due to the climate change transition, and from the growing focus on achieving global leadership. Absolute Research Strategy warns that although this is good for domestic jobs, it will be ‘bad’ for prices.
Ian Harnett said: “When it comes to inflation, investors are focusing on monetary and fiscal policy, but there are a number of other factors putting pressure on prices, and investors increasingly need to factor this into their strategies.”
Tabula Investment Management CEO MJ Lytle said: “Inflation is now very much on the agenda of investors, and their focus on this is increasing on a weekly basis as prices rise and more data suggests further increases.”
“However, the investment management industry is now more creative and innovative than ever before, so asset owners have more options open to them in terms of how they hedge against rising prices.”
Source : ETFWorld.co.uk