Fund managers stance on temporary inflation in the U.S.

Based on the US inflation will be temporary and the Federal Reserve will clearly communicate its expectations of reducing asset purchase plans, major global fund managers said they will still invest in risky assets.

Fund managers interviewed at the Reuters Global Market Forum since last week seem to agree that the Fed may value employment data more than inflation, but have different views on when and how the Fed will announce interest rate cuts.

Chief Investment Officer Mark Haefele said that UBS Global Wealth Management is preparing for some inflation.

“As in we might suspect expansion won’t gain out of power, it’s a bit like a free weight,” he added.

Haefele is betting on deflationary transactions that performed well during periods of rapid economic growth because the world is experiencing the delta variant of the coronavirus. His investment options include energy and financial stocks as well as Japanese stocks.

Rahul Chaddha, worldwide boss data official at Mirae Asset Global Investments, accepts that collapse might be a greater worry for the Fed in the medium term.

Data on Wednesday suggested that US inflation may have peaked, which may support the Fed’s argument that price spikes will be temporary.

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Chada said:

The Fed will be “willing to endure periods of high inflation” to start the investment cycle. Chada believes that with the recent rise in bond yields, cyclical leveraged stocks may see some sell-offs, but as the Fed limits yields and stays behind the curve; reinflation trading will regain its appeal in the medium term.

Cone timing:

The biggest concern of fund managers is the delta variable and the impact of China’s economic slowdown.

“In 2016, we saw the impact of China’s slowdown in economic growth on the rest of the world,” said Justin Onuekwusi, director of retail multi-asset funds at Legal & General Investment Management.

“The taper will be delayed.”

Haefele does not expect the Fed to be “very clear” soon, and said that the average inflation target provides “more room” for the Fed to deal with it leniently.

Mark Konyn, Chief Information Officer of AIA Group, predicts that based on Chairman Jerome Powell’s remarks on the potential strength of the labor market, the Fed will announce a reduction in scale in November or December of this year.

Cohen added:

That the sharp decline in the U.S. fiscal deficit will reduce the issuance of U.S. Treasury bonds, and if the Fed continues to buy bonds at current levels, this may cause market volatility.

Jim Leaviss, chief information officer of public fixed income at M&G Investments, predicts that the Fed will announce its reduction plan earlier during the “onsite” meeting in September and begin to reduce asset purchases by November this year. He reduced the average maturity or duration of his holdings of U.S. bonds.

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