![]() ![]() But definitely, the markets do not like inflation. A lot of that will be transitory, I’m sure. So, currently, we’re in that sort of spike of 6 per cent in the US. When inflation hits 6 per cent and plus, markets don’t like that. And generally during that time, over the last hundred years, the market goes well. Zero to 3 per cent is like Goldilocks inflation. There’s been a good study that shows there’s a certain amount of inflation where the market does really well. First up, the operational effects for companies. Matt Williams: Inflation is definitely a headwind, and it’s a two-pronged thing. Do you agree with that narrative or have you got a counterview? James Marlay: Matt, just on this idea of rising inflation and rising rates being a headwind for equities, specifically for Aussie large caps. ![]() And if earnings are still growing on the back of the economy growing, then there should be some growth in the Australian large-cap space, in any case. I think a second point to raise is, the market really thrives on earnings. So I think from that perspective, that’s a general positive for the market environment, despite the accelerating narrative on interest rates. One is that we think that liquidity in the market is still pretty high. How much of a headwind do you think rising inflation and rates would be, specifically for Australian large-cap stocks? ![]() James Marlay: This is a broad question ST, but we often hear that inflation equals bad for equities, and can result in higher rates, reducing the multiple on stocks. And therefore they should be able to navigate the scenario if we back a good measure team. Because as an investor, we can’t actually do too much with the external environment, but certainly the companies that we invest in can see what’s happening with their supply chain, with their companies. We want to back companies that can navigate the tough environment, the changing environment, and the ever-evolving environment. So for us really, this year, in particular, is really about sussing out or seeking out companies that are truly well managed. But I think, as Matt said, it is hard to project out 12 months, 24 months, and what it does, the companies that we actually own. I think the key to point out in all of this is that the narrative is also evolving, right? In the last couple of weeks, the supply side of things has come into the picture much more significantly. ST Wong: Thanks, James and Matt for your insights. James Marlay: ST have you got anything to add to Matt’s comments around thinking about higher interest rates and inflation and some of those reader expectations that we’ve alluded to? Then on the other side, we look at well, if this narrative is not true, but the market is starting to price it in, where are the opportunities in the market, from that angle. And so what we do at Airlie is look at our portfolio and go, we don’t really know what’s going to happen exactly, but if the dominant narrative is interest rates are going to rise and inflation’s going up - if this really does occur, what’s the worst that can happen to us in terms of the stocks in our portfolio. Look, I don’t know.īut it does make sense. Matt Williams: I’m surprised it’s only 65 per cent, such is the dominance of this narrative that interest rates will be higher, at least in US official rates in particular and probably here at some time. What’s your view on these issues, and how are you thinking about them? So, Matt, I’m going to start it with you. ![]() Whether it is or isn’t, we’ll find out: 60 per cent of readers said they expect the RBA to hike rates this year, which is against the narrative coming from the RBA and 65 per cent believe that the US 10 Year Bond, which is a really important number to keep an eye on, will be higher in 12 months time. And I’m seeing this across the market people talking about this being a really big issue. A couple of the topical views that came out were on interest rates and inflation. © 2022 Raymond James & Associates, Inc.But let’s start with the survey. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Links are being provided for information purposes only. Contact our office for information and availability. Investors outside of the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Please note that not all of the investments and services mentioned are available in every state. Therefore, a response to a request for information may be delayed. Raymond James financial advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered. ![]()
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