According to Hans Goetti in an interview, the world is somewhere between deflation and inflation at the moment.
More specifically, there are deflationary pressures in developed economies and inflationary pressures in Asia, as a result of a combination of liquidity programmes and loan growth in China of between 25% and 35% for the last three years.
He said, however, that inflationary is pressure easing off, with Asian central banks as a result probably coming to the end of the cycle of monetary tightening.
As a result of these trends, Goetti said he is supportive of Asian equities. However, the problem is global correlation, with US equities starting to price in a recession to a certain extent. Yet he said he thinks a large part of the inevitable earnings downgrades are still ahead.
In terms of fixed income, Goetti said bonds seem attractive. He said he thinks high-yield bonds are already pricing in a recession, creating an opportunity for these products along with emerging market bonds in local currencies.
Treasury bonds are also attractive, he added, and despite a recent rally, the focus will be on flattening the yield curve, he predicted.
In relation to Asian currencies, Goetti said the firm holds a good portion of its portfolio in Singapore dollars, and in fact Singapore stocks, because some of them have very attractive dividend yields.
When investing in the Asian markets, he said the firm doesn’t hedge its exposure because it likes to have this exposure.
Assessing the impact of inflation
According to Goetti, inflation is obviously not a positive thing given that it erodes purchasing power and hurts savers.
On the other hand, deflationary environments are not necessarily bad either, he added, explaining that at the same time as this existed in the 19th century there was an economic boom.
Indeed, with price levels going down during this time, purchasing power goes up.
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