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Stagflation? How to invest if it happens

Stagflation? How to invest if it happens

While there remains lots of doubt about whether the UK is truly heading for a stagflationary phase, if it happens equities are likely to be the best performing asset class, according to the guests on the latest edition of the FTAdviser podcast. 

Alan Higgins, managing director and UK chief investment officer at Coutts, doesn’t believe stagflation, such as the economic conditions of the UK for much of the 1970s, are likely to be prevalent in the years to come.

But he said if that is how it plays out, then equities are likely to be the best place to be invested. 

He said: “What we learned from March 2020 is that equities are about long-term cashflows, and can see past short-term volatility or events of that kind.

"But if we do get stagflation, investing will generally be troublesome and bonds will be very difficult to invest in indeed.” 

James Dow, who jointly runs the £987m Scottish American investment trust, said while many parts of the equity market would suffer, particularly those equities which are vulnerable to higher bond yields, some companies have demonstrated over time that they can generate income and growth even in environments where inflation is high. 

Fahad Kamal, chief investment officer at Kleinwort Hambros, said the UK was “nowhere near” the stagflationary conditions of the 1970s.

He said one of the ways to define stagflation was via the “misery index”, where the rate of unemployment, expressed in percentage terms, is combined with the inflation rate. 

He said if this number is above 20 per cent, then stagflation is present, but in the UK right now, that number is less than 10 per cent. 

But he agreed if there was stagflation, equities would perform best. 

david.thorpe@ft.com