Managers of the largest funds fear the growth of inflationary risks

Managers of the largest funds fear the growth of inflationary risks. Managers do not believe in the sustainability of the decline in consumer prices observed in recent months in the US and several European countries. As a result, expectations for a Fed rate cut are shifted to a later date. Investors maintain a high proportion of cash in their portfolios, although they continue to gradually increase purchases in the US stock market and emerging markets.

The Bank of America (BofA) analysts’ survey of portfolio managers in July shows a marked rise in investor inflationary fears. Thus, the number of respondents who said that inflation and the rigidity of the monetary policy of central banks is a key risk with unpredictable consequences for the economy, amounted to 45%, which is 9 percentage points higher than in June. Inflation growth was more feared in October 2021 against the backdrop of price unwinding due to the coronavirus pandemic and rising oil and gas prices.

The current rise in inflationary fears is taking place against the backdrop of declining inflation in the US and a number of European countries. The growth rate of consumer prices in the US in June fell to 3%, updating at least two years. In France, inflation slowed to 4.5% last month from 5.1% in May. “Despite the efforts that have been made by central banks and the actual decline in inflation, this does not give optimism in inflation expectations, which we see from polls not only from BofA, but also from Goldman Sachs, JP Morgan and other investment houses,” notes Shavkat Mustafaev, head of investment consulting at Rosbank. This is due to the instability of the observed decline in prices. “A premature celebration could undo the hard-won gains on disinflation,” IMF Managing Director Kristalina Georgieva said at a meeting of G20 finance ministers and central bankers.

Under the current conditions, managers expect a longer period of maintaining high rates in Western countries, which is negative for the global economy. If in June every second manager did not rule out lowering the Fed rate already in the first quarter of 2024, then in July there were only 26% of them. At the same time, the number of those expecting an increase in the second quarter of next year increased from 23% to 29%. “The current marginal state of the risk of a return to rising inflation does not allow for a sharp shift in the focus of central banks towards easing monetary policy, which can trigger a wave of corporate defaults,” Mustafayev notes.

As a result, managers increased the share of cash in their portfolios from 5.1% to 5.3%. At the same time, they actively changed the structure of their portfolios. In particular, at a record pace, they reduced investments in commodity assets and increased investment in shares of technology companies, the healthcare segment. Most actively, investors increased their investments in US stocks. In July, the number of portfolios in which their share was below the indicative level exceeded the number of those in which it was higher by 10% by 10%. Over the month, the number of pessimists decreased by 15 p.p.

However, the number of investors increased their investments in shares of companies in developing countries. According to BofA, the number of managers with a share of such securities in the portfolio above the indicative level was 23 percentage points higher than the number of those with a lower indicator. In June, there were 10 percentage points less buyers. Konstantin Asaturov, Managing Director of the Equity Department of Sistema Capital Management Company, draws attention to the fact that in the markets of developing countries, not counting China, in general, good macroeconomic statistics are coming out.

The Russian market, due to its isolation from global markets, is growing steadily under any conditions. On Tuesday, July 18, the Moscow Exchange index rose above 2950 points for the first time since February 22, 2022. Since the beginning of the year, growth has amounted to almost 37%, and only since the beginning of summer, the index has added more than 8%. Even the deterioration of geopolitics no longer has the same effect as it did last year, says Mikhail Bespalov, an analyst at KSP Capital Asset Management. The market is supported by an active influx of private investors (their share in the trading of the Moscow Exchange steadily exceeds 80%), good financial results of companies, a return to the practice of paying dividends by companies that did not do this last year, as well as the weakness of the ruble (the exchange rate of the dollar from 5 July does not fall below 90 rubles / $), from which export-oriented companies benefit. “The impact of external factors can increase only in the event of some extraordinary events. If they do not exist, then the significance of these factors for the future dynamics of the Russian market will continue to decline,” Konstantin Asaturov believes.

Vitaly Gaidaev