Still persistent supply side pressures are likely to keep inflation high.
Reshoring of supply chains, restrictive trade policies and geopolitical tension fuel disruptions and inflationary pressure.
Supply chain restructuring
Geopolitics fuel inflation through commodity prices
Geopolitical tensions between Russia and Ukraine exacerbates pre-existing inflationary pressures, contributing to sustained price trends, especially for commodities.
Psychological dimension is starting to kick in
Inflation has a critical psychological dimension that depends on forces of memory, forgetfulness and policymaker’s behaviour.
While consumer demand and labour markets are strong – especially in the United States - investors should be aware of the wage inflation loop, which may become self-fulfilling.
Structural factors: the greenflation
Structural factors such as the energy transition will add to inflationary trends in the medium/long run.
This, coupled with the still limited production capacity of renewable energy and high demand for commodities needed in the transition, will push up the energy bill and boost green transition-related commodity prices.
Inflation: Macro Story
Higher inflation rates can be a challenge for investors but we believe that these challenges can also be seen as opportunities. In an environment of higher inflation, we believe investors could explore opportunities that have the potential to deliver real returns.
Inflation remains above Central Banks’ targets
Inflation is not just another news headline. From the grocery store to the gas station, everyone has been confronted by the stark reality of higher and higher prices.
Identifying commodity and commodity linked opportunities in an inflationary regime
Inflation is back, and it’s everywhere. Consumers all over the world are continuing to grapple with higher prices for groceries, fuel, furniture, and other typical household expenditures.
Inflation is back
Discover why it matters and how to prepare.
Exploring Real Assets and Absolute Return Strategies in an Inflationary Regime
Inflation is running significantly above central bank targets across the world. Heightened global conflict has further contributed to this inflationary trend.
Global demand for food and water is increasing just as the availability of clean water and farmland is shrinking
Growing Global Population
Rapid Urbanisation and Improved Living Standards
By building new homes and the cities we live in and improving overall quality of life a growing demand for raw materials and energy has been created
Energy Transition and Electrification
The global energy transition and large scale electrification of the economy are likely to stimulate the demand for a variety of scarce transition-related commodities
Geopolitical conflict has added significant additional pressure to global energy supplies, fertilisers, food, metals, and more
Companies owning toll roads, airports, electric & water utilities, mobile networks
Companies that produce metals, agricultural goods, fertilizers, timber, oil and gas
Companies that own and operate Real Estate (ie. logistics or apartments)
Energy, precious & industrial metals, agricultural goods
US TIPS, Index-linked Gilts, EM inflation-linked Government Bonds
Pick-up in economic activity, rise in commodity prices
Inflationary environment with stable yields
Dependent on sector, energy and metals benefit from acceleration
Rising inflation expectations, declining interest rates
Property values tend to rise with higher price levels, rents also tend to increase in inflationary environment
Rising commodity prices may trigger inflation and could respond quickly to changes in supply and demand
Total return and stable cash flows
Diversification* and regular cash flows
inelastic demand structure may enable producers to pass on higher prices to customers and improve cash flows and profits
Total return and diversification*
Sector specific: consumer demand, traffic
Cash flows and asset values might be directly linked to inflation
Supportive Economic Environment
Link to Inflation
Real Asset & Absolute Return as inflation sensitive diversifiers
With inflation coupled with stagflation and recessionary fears some investors may be re-evaluating their portfolios. This video explores how Real Asset and Absolute Return strategies could be particularly relevant in inflationary times
Understanding the Commodity Universe
After a decade of relatively low commodity prices, the world is reaching a point where the collective demand for these critical resources is outstripping the available supply. With the current demand for commodities we believe commodities may be a relevant asset class to consider.
Real assets reacted positively to inflation during times in which inflation was surprisingly on the upside or trending up
Rising Geopolitical Tensions
Real assets could offer inflation-linked income potential, as some income streams of real asset companies are often connected to inflation
Adding real assets to a more traditional bond/equity portfolio might help to increase diversification*
Including more real assets sectors could help enhance the overall risk-return profile of a portfolio, compared to investing in a single real asset component
*Diversification does not guarantee a profit or protect against a loss