Inflation concerns continue to shape market predictions. «For three months, we witnessed impressive figures, but then oil prices spiked unexpectedly. This isn’t a fleeting issue,» commented Mary Pieterse-Bloem, chief investment officer of Rabobank, at Investment Officer›s 16th Fondsevent conference in the Netherlands on Monday.
«Inflation remains a looming threat,» echoed Wim Barentsen, chief investment strategist of Achmea Investment Management. The magnitude and implications of this inflationary threat provoked debate. However, with governments persistently ramping up their spending, central banks› interventions appear either negligible or unpredictably impactful.
Han Dieperink, chief investment strategist at Auréus, provided insight, «With significant global elections scheduled for 2024, politicians would typically steer clear of economic downturns. Hence, I foresee sustained economic stimuli.»
Hedging interest risk
Wouter Weijand, chief investment officer of Providence Capital, explained his company’s hesitancy towards long bonds due to their volatility, leading them to embrace floating-rate private debt. In contrast, Barentsen indicated that pension funds, used to mitigating long-term interest rate risks with swaps, have a distinct strategy. «Our clients typically hedge about 60% of the interest rate risk in this manner,» he elaborated.
On the subject of governments› evolving roles, Barentsen characterized the present inflation scenario as predominantly structural. He attributes this to governments› interventions in various sectors like climate change, income inequality, and defense. This, he believes, marks a departure from prior eras, ushering in higher inflation and interest rates.
While Dieperink held a less bleak view, suggesting the next significant interest rate change could be a descent, he also highlighted the potential upsides of elevated interest rates. Pieterse-Bloem, meanwhile, voiced reservations about the IMF›s latest forecasts, considering them excessively gloomy, but concurred on the persistent weight of inflationary pressures.
Cautious optimism
As for the possibility of a profound recession, Pieterse-Bloem expressed cautious optimism. She believes that a slowing growth might not necessarily lead to a recession. In contrast, Dieperink foresees a potential market correction, especially in equities, and even contemplates the likelihood of a financial crisis.
Lastly, Pieterse-Bloem pinpointed potential risks within the debt-laden Chinese economy. «A minor event in such a scenario can trigger substantial repercussions,» she cautioned, emphasizing the ripple effect that could emerge. Her narrative concluded with apprehensions about a looming debt crisis in China.