New research from European fixed income ETF provider Tabula Investment Management reveals that 95% of investors surveyed recently expect inflation to rise higher than many leading market commentators predict over the next 12 months.
Tabula conducted the survey with 100 wealth managers and institutional investors representing c.€100bn in assets under management from the UK, France, Germany, Italy and Switzerland.
With Chinese wages rising closer to Western levels, and other emerging economy wages expected to follow suit, 91% of professional investors interviewed believe an inflationary “demographic reversal” has started to tighten its grip – some 44% strongly agree with this view.
Reflationary factors will become more important
Tabula said it found that many professional investors believe a number of reflationary factors will become even more important over the coming years.
Ninety-seven per cent of professional investors interviewed identified the shift from globalisation to autarky as putting pressure on inflation in the next three years. Similarly, 87% said the huge increases in capital expenditure expected over the next decade would contribute to inflation. 7 out of 10 cited loose monetary and fiscal policies as a further inflationary factor.
“The economic, fiscal and monetary policies implemented by governments around the world in response to the Coronavirus pandemic have contributed to a spike in inflation, but our research shows professional investors believe there are longer term demographic and political trends that may lead to a sustained period of rising prices,” said Tabula CEO Michael John Lytle. “Increasingly, professional investors not only need to focus on how to deliver growth and income within agreed risk parameters, but they will also have to focus on ways to address rising inflation.”
Tabula’s US Enhanced Inflation UCITS ETF is the only ETF in the market that provides exposure to both expected and realised US inflation in a single ETF. It does so by combining exposure to a US TIPS portfolio with exposure to US inflation expectations (7 to 10-year Breakevens). It already has over US$90m in assets under management, and is attracting growing interest from institutional investors and wealth managers across Europe. The ETF is available in different currencies across European exchanges.
Manufacturing drops in key Asian markets
The impact on inflationary pressures is not to be underestimated by investors. While central banks continue to work hard to calm nerves, local data supports a scenario where traditional emerging markets and sources of rapid economic growth are starting to hit the inflationary buffers.
Manufacturing activity across all seven countries in the ASEAN block contracted for the first time since May 2020, according to data received today. PMIs for the region remained firmly in contraction territory, whilst inflationary pressures also remained high. “Input costs increased markedly again, with firms raising their average charges at an accelerated pace as a result,” IHS said.
China’s Caixin PMI also registered a drop, marking the first time it has been in contraction for a year and a half. In Europe, German retail sales plunged by 5% – after yesterday’s 3% inflation print for the Eurozone. PMIs for the Eurozone already showing declining momentum + deeper supply chain problems and accelerating inflation pressures.
