Inflation “stubbornly” sticking around: deVere

Yasmine Raso

Senior Journalist, Financial Newswire

17 February 2023

Despite inflation rates settling down in the US and the UK, they remain higher than most economists’ expectations and central bank targets, leaving markets to cope with persistent high interest rates.

Data showed the US Consumer Price Index (CPI) slowed to 6.4 per cent for January, only 0.2 per cent higher than was widely expected and down from the 40-year-high of 9.1 per cent in June 2022.

The UK’s CPI hit 10.1 per cent to record three months of straight declines and sit under economists’ expectations but five times higher than the Bank of England’s target.

deVere Group chief executive, Nigel Green, said the inflationary pressures on market conditions can cause a ripple effect on investors and their portfolios and force them to rethink their investments.

“Stubborn inflation affects stock markets because central banks, including the US Federal Reserve, Bank of England and European Central Bank, will have to continue to step in and raise interest rates,” he said.

“This means people adjust and rein-in their spending, it cools the economy and companies can struggle to make profits. Stock markets are correlated to the profits of the companies within that particular index.

“In this environment of higher rates for longer than had previously been anticipated, some companies are going to find it difficult to maintain margin and, as we’re now seeing, are failing to report earnings as had been expected.

“In other words, if costs are going up firms can’t maintain margin, so that company is unlikely to be a good investment until things change.”

Green also said there were four key sectors he sees as resilient towards current market headwinds, including healthcare, luxury goods, energy and agriculture.

“Healthcare is a robust sector as people will always need to stay healthy – this has come into focus more than ever since the pandemic.

“Also, despite wider market volatility, there’s strong earnings potential due to ageing populations and other demographic changes. Plus, healthcare is becoming increasingly tech-driven, which offers fresh opportunities.”

“Luxury goods can maintain margin due to the inherent aspirational ‘elite and exclusive’ aspect of the sector. We’ll look at energy because there’s a shortage of energy in the world right now.

“Agriculture is another one as populations in emerging markets around the world are eating more meat. As they eat more meat, there needs to be more grain produced.”