The war in Ukraine is shifting the conversation on what a post-COVID-19 world will look like. Gene Podkaminer, Francis Scotland, Michael Hasenstab, and Stephen Dover have shared their insights on the topic.
Here are the highlights from their discussion:
- Greater regionalisation of trade flows will likely result in a more multi-polar world that is inherently less stable, creating more volatility. This “whiplash” environment looks like cycles of very short, intense periods of growth and inflation.
- Globally, central bank policy decisions will vary dramatically based on country-specific economic dynamics. Central banks in the United States and Europe have been behind Asia and Latin America in the pace of monetary tightening. Looking at the United States specifically, the Federal Reserve’s response has been slow and reactionary.
- Commodity inflation in food and energy will likely continue over the near term and will be driven largely by supply issues. More persistent inflation could be influenced by the current combination of shortages in the labour and housing markets. Historically, inflation has tended to be more persistent when driven by shortages in the labour market.
- Global economic recovery is stalling after strong growth in 2021. Since March 2021, rising prices have eroded purchasing power, and durable goods orders have remained flat over the past six months. These factors have led to a slow “real growth” (gross domestic product growth minus inflation) environment, creating an increased risk of recession.
- With volatility across both bond and stock markets, selectivity becomes key in finding truly uncorrelated assets. Fixed income assets in Asia and Latin America look attractive to us as these regions generally benefit from higher commodity prices. We believe equity portfolios should favour regions primed to effectively manage inflation or have structural tailwinds to growth.
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