Investors Could Be Left Exposed to Rising Inflation

Wages are increasing, and prices could soon follow suit. How are fund managers positioning their portfolio to protect invetors from these inflationary pressures? 

Cherry Reynard 23 June, 2016 | 11:49AM

In the recent market turmoil, the German 10-year bond yield turned negative for the first time. An unprecedented 31% - equivalent to $8.3 trillion - of the bonds in the JP Morgan Government Bond index now trade on a negative yield. In other words, vast swathes of the bond market now offers no protection against inflation, and, in many cases, assumes deflation.

There are arguments to support this view: years of monetary policy stimulus have produced only anaemic growth. There is increasingly credible discussion of extraordinary policy measures, such as helicopter money. However, many fund managers now believe the risks are skewed the other way, with markets paying insufficient attention to the potential for inflation, at a time when inflationary pressures are starting to emerge.

In the US, wage growth is picking up tentatively, in spite of the recent weak jobs figures. In the UK, CPI inflation was unchanged in May at 0.3% and has not hit the Bank of England’s target of 2% for more than two years, but wage growth is increasing. 

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About Author

Cherry Reynard

Cherry Reynard  is a financial journalist writing for Morningstar.co.uk.

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