Inflation weighs on investor sentiment Opinion | Currently

The topic that dominated discussions at the Mercer Global Investment Forum in Europe in Barcelona was inflation and specifically how it is managed in portfolios. According to a survey, about 41% of institutional investors believe that the global economy is heading towards stagflation.

At the Mercer Global Investment Forum in Europe in Barcelona, ​​Spain, concerns about uncontrolled inflation were at the center of discussions. According to a direct survey, four out of ten corporate participants fear stagflation. However, Robert Watson, head of European asset allocation at Mercer, said that while inflation may be a short-term concern, he believes those concerns are exaggerated in the longer term. “The pressures we saw before the Ukraine crisis were the result of the demand shock that drove prices up,” Watson said. “Demand in the global economy has been very strong since the Covid crisis, so I think stagflation is relatively unlikely even given what we are seeing right now and I think growth will be good.”

New growth opportunities in Asia

Economic and geopolitical uncertainty forces investors to consider the structure of their portfolios, the impact of monetary policy and the evolution of global trade. The ongoing shift in economic focus from the United States to China provides new growth opportunities for investors while meeting diversification requirements. For example, Asian private equity investments can complement portfolios by gaining exposure to hard-to-reach areas through public markets, such as: b. early stage technology. If they had an additional 2% capital to invest in stocks, 53% of GIF Europe participants would be redundant in Chinese stocks (A stock) rather than the US over a five-year period.

Michael Lernihan, Europachef für die Bereiche Investments & Retirement bei Mercer, sagte: “Anleger müssen sich Gedanken darüber machen, wie sie sicherstellen, dass ihre Portfolios gegen Inflationsszenarien gewappnet sind, da Regierungen und Zentralbanken mit den Folgen von aufgeblähten Vermögensmärkten und steigenden Löhnen zu kämpfen to have.” Shifting to assets such as gold, stocks of sustainable resources and commodities in poorly prepared portfolios, while long-term exposure to real assets can help boost inflation-related returns.

In another direct poll, nearly half of respondents said they believe real assets are the best asset class to mitigate the effects of inflation.

Climate change is high on the agenda

Climate change was high on the agenda for many participants, to the point that a complete portfolio transformation became inevitable. Many investors are increasingly being asked to set emissions reduction targets for each asset class.

“Sustainable investing is also about looking at the implications of the four elements — return, risk, reputation and regulation — for all investors,” said Hill Gaston, Mercer’s chief sustainable investing expert. “Participation is one of the most valuable tools for investors to bring about meaningful change, but we need to be more careful about issues such as diversity and social progress, as well as climate-related factors.”

Those who want to make a difference can learn from active investors and bondholders, Gaston added: “Many investors will become more focused on purpose and look to make a difference with their investments and create meaningful and measurable change.”

GIF Europe

The Mercer Global Investment Forum (GIF) Europe was attended by more than 200 asset managers and 150 asset owners on 28 and 29 March 2022. The audience consists of managing directors, partners and executives from wealth managers from around the world, including ESG professionals , portfolio managers, chief investment officers, treasurers, financial managers, actuaries, sustainability leaders and CFOs for wealth managers.

design together

Niall O’Sullivan, Mercer’s Chief Investment Officer for Europe and AMEA, commented that a concrete understanding of today’s drivers of future financial developments is essential to achieving future investment goals. “To achieve this, working together is fundamental. It is only through cooperation and common development that we can achieve our common goals. We need to work together, talk to each other and discuss our ideas for co-creation, and we all look forward to doing so,” he said.

The United Nations Conference on Trade and Development estimates that between 5 and 7 trillion US dollars is needed to achieve the Sustainable Development Goals. This includes investing in areas such as biodiversity, as the massive decline in species threatens food security.

Nick White, global head of strategic research at Mercer, added: “It is important that we develop a complex plan for climate change – one that goes beyond marking a list focused on planetary emissions…rethinking resource use.” The transition to a circular economy needs to target those areas that require the most change and support those areas that are needed for a green economy in the future.