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Investment strategy
February 22, 2021
3 mins

Beware the cash thief

February 22, 2021
3 mins
David Bailin
Chief Investment Officer
Steven Wieting
CHIEF INVESTMENT STRATEGIST AND CHIEF ECONOMIST
Cash deposit box
SUMMARY

Central banks are targeting higher inflation while keeping interest rates low. Although this poses a risk to cash and bonds especially, some assets look better placed to perform in the coming years.


  • Developed Markets central banks are actively seeking to tilt up the trend pace of inflation for the first time in at least a half century. This requires investors to consider inflation drag in a new way, as real cash yields and real long-term government bonds are priced for negative returns. 
  • Near-term economic recovery prospects are far more certain than the long-term inflation outlook. Lasting inflation requires persistent excess demand relative to supply. This would in turn require monetary policy (and possibly fiscal policy) staying forcefully accommodative long after the present downturn ends.
  • Equity markets have enjoyed sharp upward revisions to growth expectations. Bond valuations are now playing catch up with 10-year real yields rising about 25 basis points from record lows. While no disaster, growth stock valuations are beginning to see some pressure, in line with our long-held views.

Insights

See our insights and the issues that matter for your wealth. 

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Insights

See our insights and the issues that matter for your wealth. 

View all insights
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