DInflation is proving stubborn and will be around 4 percent rather than 2 percent at the core for the foreseeable future, excluding volatile energy and food prices. Bernhard Langer, investment strategist at American asset manager Invesco, is convinced of this. In an interview with the FAZ, he says that the central banks will continue to raise interest rates. There is no leeway for them to suspend their interest rate hikes or even to lower interest rates. This hope on the markets, which contributed to the price gains on the financial markets in the first few weeks of the new year, was greatly exaggerated and unrealistic for Langer.
The economy, which is still stable at the moment, allows monetary policy to continue its tightening course. “Here the American Federal Reserve clearly sets the tone,” he adds. The European Central Bank (ECB) is also called upon in view of the high inflation and will raise interest rates too much rather than too little. For the investment strategist, there are structural reasons why inflation will remain elevated. The first thing he mentions is the high level of debt: it means that governments and companies are forced to pay a risk premium for their refinancing in order to attract investors. “The rising financing costs are contributing to the upward pressure on prices,” says Langer.
“Stagflation weighs on the stock market”
As a second reason, he considers the demographics with an older population, which ensures tight labor markets and thus rising wages. Third, the transformation to a green economy will entail higher costs for everyone involved. Fourth and finally, the so-called “homeshoring”, i.e. the relocation of production to domestic plants, also causes higher costs. Although Langer does not fear a severe recession, the economy will not grow if inflation is high. “This stagflation will weigh on stock markets,” he says. In addition, there is a difficult geopolitical situation, which is difficult to assess in terms of the relationship between China and the United States.
Favor short maturities for bonds
He therefore assesses the development on the stock market with caution. After the turnaround in interest rates, many institutional investors increasingly focused on bonds again. With short-term debt securities of American companies, yields of between 5 and 6 percent could be earned relatively risk-free. In contrast, the Invesco strategist expects the stock market to move sideways at best. The inflow of funds into the funds also showed the greater interest of investors in interest rate products. In view of the inverted yield curve, on which interest rates are higher for short maturities than at the long end, investors should better orientate themselves towards the short end, i.e. in the maturities of one to three years, recommends Langer.
There are also shares for Langer that can be interesting in the current situation. He includes above all companies with high market power, which can push through price increases even slightly above the inflation rate. Examples of this can be the French luxury goods group LVMH or the car manufacturer Mercedes-Benz, which is increasingly targeting the upper price segment. The banks also benefited from the higher interest rates and should not have to reckon with excessive loan defaults if the economy were to land gently. On the other hand, stocks that are heavily dependent on the economy should be avoided.