According to Grill Castro, the rising inflation can be attributed, among other things, to the effects of catching up in the wake of the pandemic-induced slump in demand and supply chain disruptions. It will be interesting to see how central banks and governments will operate here. “We expect the debate over tape, interest rates, inflation and overall economic growth to continue and lead to volatility,” said Muzynic.
However, according to Michael McKechearn, the shutdown of fiscal policy actions is unexpected. “The fiscal stimulus will likely continue to increase, in part due to increased commitments to combating climate change.” According to Grill Castro, moving to a situation where the net increase in emissions is zero would be the financial and economic stimulus. Transformation and significant impact on job creation.
How did Muzinic put himself in this position? “We are now in an environment where interest rates are rising, influenced by central bank policies, and rising inflation expectations,” McKechern says. “This is why we focus on credit markets with wider spreads and shorter durations, such as high-yield bonds in the United States and emerging markets,” adds Grill Castro.
From a sectoral perspective, Muzinich is counting on the recovery of industries with good prospects, such as financial stocks that will benefit from higher interest rates and steeper yield curves. There will also be opportunities in the cyclical sectors. It should also be noted that the transition to a sustainable economy could be another cause of inflation. So there is a risk of increased demand and thus inflationary pressure in some industries, and deflation if demand falls in other industries.
“It will take some time for these changes to take effect, however, we are at a very early stage,” McKeachern notes. But this is exactly where active management can come in to ensure that investors are well placed.
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