Welcome to our latest investment market update, where we analyse the current market and global situation to bring you the latest news and how our advisers and experts are responding.
Inflation concerns are currently the main factor driving markets. There is significant concern over this, particularly in the U.S where inflation numbers have surprised a number of commentators this week after showing an increase to a level not seen since 2008. This has driven the more recent sell-off trend, particularly with heavy falls seen last week. This is one of the key reasons we recommended recent changes in a number of client portfolios to bring back some direct property, which acts as a stabiliser in times of volatility such as this.
Although this short-term drop is concerning, at Greenfields we are trying to take a longer-term view with investments and assets, whether this inflation rate is short-term or long-term. We are currently taking the view that this will be a short-term spike as countries exit lockdowns but will not be sustained. We have taken this view because the bounce in inflation is in direct response to a monumental economic crisis, and many countries are still running at 5-8% less in terms of GDP than their pre-pandemic highs.
The markets are currently taking the view that, where there is so much debt in play as a result of the pandemic, they are worries about what rises in interest rates (which are used to curb inflation) will do to businesses who already have a high amount of debt to service. However, there are other methods that can be used to control inflation, and it would not be surprising if other measures were pursued first by policy makers and central banks (for example, supplying side policies and fiscal policies from national governments).
Some of the falls in recent weeks may seem counter-intuitive when the longer-term for an investment is examined. For example, an infrastructure fund that is common with our client portfolios. This investment has fallen, along with the rest of the market, since February. However, this short-term sell-off is counterintuitive when you look over the longer-term case for this fund, with President Joe Biden’s $2 Trillion infrastructure spend planned for the U.S economy. It’s necessary to rationalise whether this is purely market jitters, or whether it is founded within a new reality. We are currently taking the former view, but are reviewing regularly and on an intensive basis.
At Greenfields, our experts are closely monitoring the market and inflation rates as we start to emerge on the other side of the pandemic, and we are here to discuss any issues or questions our clients have.
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