It could be slowflation not stagflation – and it’s better for the equity markets
Stagflationconcerns have troubled equity marketsthis year, and interest rate hikes have threatened to push some of them into bear market territory.
- Analysts now predict that we could see
slowflationfor the next 12-36 months.
- While equity markets are expected to perform better now, here’s how analysts suggest you allocate your funds.
AdvertisementWith the pandemic and the Russia-Ukraine war, global economies have been affected by too many factors that have made central banks and governments alter the course too many times. The result is confusion over which way the economy will go and what is the shape of the recovery, if ever there is one.
For weeks now, experts all around the world have been worried about
But now, analysts at
‘Slowflation’ refers to a scenario where growth and inflation coexist, but growth remains on the lower end while inflation is on the middle-to-higher end.
“In the next 12-36 months, we believe we are likely to enter a period of slowflation, which we have defined as a period of 'medium to low' growth combined with 'medium to high' inflation,” stated a report by UBS.
The analysts argue that stagflation is a rare event, and this, in combination with market data, has them inclined towards ‘slowflation’ instead.
Slowflation won’t be as bad as stagflation
Stagflation has also stoked fires of bear market concerns, but the report states that things will ease going forward. While the S&P 500 index has entered bear market territory already and has stayed there for a while, analysts expect the markets to rebound soon.
“Stocks have unsurprisingly delivered better returns during slowflation than during stagflation periods,” the report added, comparing the returns between 2000-2011 and periods of stagflation.
As opposed to stagflation, the equity allocation for a slowflation scenario will be different, with certain sectors expected to grow or rebound faster than others.
AdvertisementEnergy, materials, utilities and financials carry the highest weights in equity allocation – accounting for nearly two-thirds of the total allocation as far as Asian equity markets are concerned.
UBS’ research flies in the face of comments from economists like Mohamed El-Erian, who said “stagflation is unavoidable”. HUL chief’s warnings, too, sound ominous, regardless of how the equity markets perform.
It remains to be seen how economies around the world respond to interest rate hikes but growth could be higher than expected too — as many sectors look at a rebound from the pandemic.
Startups go physical from digital as pandemic boom ends
Akash Ambani to head Reliance Jio - that’s just phase I of Mukesh Ambani’s succession plan
Indian credit card users spend 40x more than debit card users online
Popular on BI
- Elon Musk calls on all Twitter designers, engineers doing software to sit on his floor of HQ for 'dense and intense' work
- It’s not just Mercedes, even bank deposits are competing with equities
- A former Facebook exec says an employee at a 'large tech company' once complained to the CEO in an all-hands meeting about the quality of company toilet paper
- Good news for butterfingers; with new Gorilla Glass, your smartphone can withstand a 1-meter drop on concrete
- Rupee gains 32 paise to 80.98/$ in early trade on broad dollar weakness
- India's G20 agenda will be inclusive, ambitious, action-oriented, decisive: PM
- India FMCG sector profits may be weighed by ad spend hikes, price cuts: BNP Paribas
- Global fossil fuel use to skyrocket before falling drastically over next decade; India to reach 2030 emission targets easily: report