Baillie GiffordDec 29 2021

Baillie Gifford says investors should shrug off inflation worries

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Baillie Gifford says investors should shrug off inflation worries
REUTERS/Dado Ruvic

Investors should shrug off concerns about inflation during 2022 because long-term trends were on their side, Baillie Gifford's distribution head has said.

James Budden told FTAdviser said "inflationary fears" had returned to become part of economic discourse.

The rise in global inflation - caused by high energy prices, rising consumer demand as lockdowns around the world ended and disruption to global supply chains - has sent jitters through stock markets.

Indeed over the past three months to the end of November, the MSCI World index fell by 0.84 per cent.

The Bank of England has predicted that inflation in the UK could reach 6 per cent during 2022.

Budden said: “These [fears] affected sentiment around growth stocks as future cashflows are said to be more sensitive to shifts in interest and discount rates. Long-term investors try not to be too distracted by these concerns. 

“Taking a five- and 10-year horizon, the structural forces of technology and innovation seem more likely to remain key factors in limiting the march of inflation.”

Budden said that while Covid-19 had loomed large during 2021, the long-term trends were dominated by digitisation.

He said: “In the early part of the year, much of the talk centred around a potential rotation from ‘growth’ to ‘value’. 

“This largely failed to happen. It became a contest between lockdown beneficiaries and the beneficiaries of re-opening. 

“This struggle continues with no winner, perhaps simply illustrating the futility of short-term prediction.

“Even though we might be moving on from a period of growth driven by the internet and the cloud, the pace of transformative change and disruption shows no sign of slowing. 

“Our world continues to digitalise, for example, retail, food, payments and entertainment, move more and more online with businesses building significant and unique infrastructure around their propositions which provide longevity and durability from here.”

The intersection of healthcare and biology with technology especially may be one of the most important developments this century, he said. 

“The role of big data will play an increasingly important role in healthcare.”

He added that another trend was the energy transition from fuels to renewables, and in the past it has been hard to find investable opportunities in this space.

“This is changing and companies are emerging with sustainable competitiveness, many of whom are private rather than publicly listed.”