Capital Manager: Federal Reserve’s Target is Bad – Unstable Markets

According to the following article, if you want to adjust your investment portfolio in the era of hyperinflation, you can refer to the following suggestions:

– Avoid investing in long-term bond funds and time deposits. These investment vehicles are sensitive to rising interest rates and can lead to losses. You can choose liquid and short-term bond funds, which have shorter maturities and lower risk.

– Increase your allocation to commodities and dividend-paying stocks. These assets typically perform better when inflation rises because they provide protection against inflation and stable cash flow. You can invest in commodities and dividend-receiving stocks through exchange-traded funds (ETFs) or index funds.

– Choose stocks of companies that are in good financial condition. You should analyze the financial statements of companies to see their debt levels, profitability, cash flow and other indicators. If companies have high levels of debt or are unable to pass on rising costs to consumers, then they may be vulnerable to inflation. You should look for stocks of companies that have strong pricing power, high quality products or services, and a loyal customer base.

– Adopt a flexible and dynamic investment strategy. Since inflation is a long-term structural problem, you can’t just rely on past experience or rules to invest. You need to adjust your portfolio to changes in the market, balancing risk and return. You also need to pay attention to geopolitical risks, macroeconomic data, and central bank policy moves and their impact on investment markets.

The original article is as follows:

Caixin, May 17 (Editor Yang Zhou) – Global investment market volatility has increased dramatically. Mitesh Sheth, director of multi-asset investments at Newton Investment Management, a BNY Mellon asset management giant, believes that the change in globalization trends over the past 30 to 40 years and the absence of a low interest rate, low inflation environment means that the fundamentals that have always supported investment markets have changed. Markets will be more volatile and uncertain in the future, thus requiring a dynamic investment strategy and flexibility.

At the end of March 2023, London-based Newton had £83.3 billion worth of assets under management.

Mitesh Sheth said in an interview with the Hong Kong Economic Times in London that in the past it might have been possible to get ideal returns by investing in just one market or one sector, but entering the era of high interest rates and high inflation, market volatility has increased significantly and the current investment market is more challenging, relying on stocks and bonds alone is not enough and more different instruments such as commodities must be added to the portfolio to make it more diversification.

He said, “Many investors want to get a stable dividend payout in a high inflation environment, so its income funds have recorded inflows in the past few months, and dividend-collecting stocks are also sought after.”

The Fed’s inflation target of 2% is not a reasonable expectation

Mitesh said geopolitical risk has become more important in the investment market, and his team has a specialist who specializes in geopolitical risk. There is also increased communication between the equity and fixed income teams to study different aspects, such as studying a company’s stock outlook, but also in-depth analysis of its debt structure, date of debt repayment, etc., combining different factors.

“Nowadays, investment should combine different investment strategies such as theme-based investment and macro analysis, and then be flexible to make dynamic investments in different sectors or industries in order to be ready for long-term investment, and as the market becomes more unpredictable, it will be more difficult to get the desired returns by adopting passive investment strategies.”

The Federal Reserve has repeatedly stressed the need to reduce inflation to the target level of 2%. mitesh believes that inflation back to 2% is not a reasonable expectation, because the current inflation is a long-term structural problem, and the global commitment to the transition to a low-carbon society, the related infrastructure capital expenditure will also push up inflation, so now can not return to the past decade of low interest rates and low inflation environment, the expectation of reducing inflation to 3% to 4% may be more reasonable, the market Has accepted that inflation is structural, and will be maintained at high levels for some time.

Mitesh continued, although the Fed’s fight against inflation to maintain hawkish rhetoric, but he believes that U.S. interest rates have peaked.

However, he also believes that unless the Fed sees signs of slowing economic growth, it will not immediately begin to reduce interest rates.


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