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Inflation barometer

Investors recharge portfolios as inflation expectations cool

By Yasmine Masi7 February 2022

Nigel Green, CEO of financial advisory and asset management organisation deVere Group, said investors have moved to replenish their portfolio with stocks as inflation expectations for the rest of 2022 have simmered down.

Green’s comments come as global central banks, including the Bank of England, the U.S. Federal Reserve and the European Central Bank, have implemented tough policies to control surging prices.

“In many developed countries, headline inflation rose by the end of 2021 to its highest level in between two and four decades,” he said.

“Central banks have been behind the curve on inflation and have largely failed to keep prices under control. This is why many are now currently playing catch-up with the tightening of monetary policies.

“Such is the panic of persistent inflation and the measures needed to deal with it, some analysts have recently been saying they expect the likes of the Fed – the world’s most influential central bank – to raise rates five times this year.”

Green also highlighted the effects of rate hikes on stock prices particularly in the tech sector, after shares in Meta, the owner of social media platform Facebook, plunged more than 20% in after-hours trading earlier this week.

“The tech-heavy Nasdaq index suffered its worst month in January since the pandemic first jolted markets in March 2020,” Green said.

PayPal also struggled to meet expectations after dropping close to 25%, and Spotify fell up to 23% before regaining some ground to trade around 10% lower.

“It’s our experience that many investors now believe that we could hit peak inflation by the end of this quarter, as global supply chains, which have been largely responsible for price hikes, begin to return to some sort of post-pandemic normality,” he said.

“In turn, this would mean that interest rates will not have to be hiked as much or as often as some commentators have suggested. This would be bullish for stock markets.”

Green also said these trends have pushed investors to top up their portfolios with high quality stocks that have been affected by the potential for aggressive rate hikes throughout the rest of the year.

“They are seeing the current dip as a discount and using it as an opportunity to build their long-term wealth.”

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