Inflation May Be on the Rise
By Saghir Aslam
Rawalpindi, Pakistan

 

(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live with dignity and fulfill their moral obligations towards charitable activities)

Majority of the money managers expect prices to rise over year.

Global investor’s expectations of inflation have surged to their highest level in more than q decade, according to a survey of money managers that underlines how Donald Trump’s election as US president has electrified financial markets.

More than 80 per cent of those surveyed this month believe the global level of prices will rise over the next 12 months. Although concern over inflationary pressures in the US had been rising before election, the president elect’s pledge to turbocharge the economy with tax cuts and fiscal stimulus has strengthened the conviction that inflation will return for the first time since the financial crisis.

Anticipation of higher inflation has skewered the bond market, with the yield on the benchmark 10-year Treasury note rising by almost half a percent. As a result of the changing outlook for inflation, two-thirds of investors believe that longer-dated bonds – a popular asset for much of the year – will now underperform. In a further sign of the reverberations the US election has triggered in financial markets, the amount of cash held by global investors had its biggest monthly drop in seven years in November. Cash levels fell to 5.8 per cent to 5 per cent in October.

Although the biggest ructions have been the sovereign bond market, the changing of the political guard in Washington has produced sharp changes in the US stock market as investors rush into sectors more likely to benefit from a stronger US economy. According to the survey of 177 institutional investors managing $456bn, 44 per cent predict this rotation will carry on well into next year, although just over a fifth believe the move will finish by the end of the year.

Banks have been one of the big winners of the rotation out of the more defensive stocks that flourished in the first half of the year, with the S&P Banks index up 12 per cent in just over a week. While the reaction has been near euphoric in parts of the stock market, the survey, which was conducted in the five days after the US election, also showed some signs of nervousness that Mr Trump’s policy mix could generate inflation without much growth. The biggest tail risk identified by investors was the fear of a “stagflationary bond crash,” with 23 per cent of those surveyed citing it as their biggest cause for concern.

Economists have pointed out that Mr Trump’s threat to impose tariffs on countries such as China and dismantle the free-trade zone covering the US, Mexico and Canada is likely to fan inflation. And protectionist policies were cited as the biggest threat to financial stability, with 84 per cent of investors highlighting it – the biggest proportion since 2009.

Check your portfolio, meet with your financial advisor and check out how you may want to rebalance your portfolio so that you are with the market. Understand it. Once you have done this, you will benefit from your homework, you will be rewarded.

I have written again and again, to get return on your money you have to do your research from all different sources. It can be your money manager, it can be your financial advisor, sometimes you even benefit from discussing it with old time stock brokers. In this day and age it is so easy, just to go on the internet and you get all the information you want with the click of a mouse. But in order, for anyone to be successful in any field, particularly when it comes to investing money in the stock market, research, homework, the more the better homework you do, the better you will be rewarded.

So far whatever I have read or seen, it seems like inflation is coming for sure. How much inflation? We don’t know yet. But be prepared and try to adjust your portfolio accordingly. You will be glad because all of this will pay off.

(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)

 

 

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Editor: Akhtar M. Faruqui
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