Bruce Stout, who runs the £1.75bn Murray International investment trust, says markets are “too complacent” about the potential for much higher inflation to damage returns.
In his most recent update to clients of the trust, Stout says: “Despite the relentless rhetoric of policymakers and politicians trying to reassure the public that current global inflationary pressures are merely transitory economic symptoms of post-pandemic stress disorders, recent upward spikes in bond yield suggest otherwise.
"Rising food, energy, housing and commodity prices are arguably more reflective of structural supply shortages, under-investment, increasing trade and tariff barriers, logistical disruptions and escalating geo-political tensions worldwide.”
He adds: “With broad measures of inflation breaching decade long highs in the United States, the UK and Europe, the prospects of higher inflation expectations becoming entrenched in future wage negotiations presents an increasingly uncertain environment for financial markets.
"A background of rising prices and wages certainly poses significant challenges, none more so than for sectors and investment assets currently complacent in the belief that inflation had been consigned to the history books.”
Stout says that from an investment perspective, current equity market valuations, particularly in long duration asset sectors such as technology and consumer staple shares, do not reflect the potential for those sorts of assets to under perform if inflation remains persistently higher.
He is focused on owning what he calls “real assets” in the current climate. Real assets could include infrastructure and commodities.
david.thorpe@ft,com
