The Continental Group, a leading insurance intermediary and financial services provider in the GCC region, recently hosted a webinar titled ‘Can inflation be tamed? Learn from the experts', where finance specialists demystified inflation and its impact. While the survey respondents wholly agreed that rising inflation will impact their cost of living, over two-thirds said they still view equity markets favourably.

Joseph Graham, CFA, Managing Director & Investment Strategist, Lord Abbett; Atul Penkar, Senior Portfolio Manager, Aditya Birla Sunlife AMC; and Neelam Verma, Vice President & Head of Investments, The Continental Group; were the key speakers at the webinar, which was hosted by Anselm Mendes, Executive Director of Sales, The Continental Group.

Graham Joseph, Neelam Verma, Atul Penkar and Anselm Mendes.

Graham Joseph, Neelam Verma, Atul Penkar and Anselm Mendes.

The webinar was conducted in light of rising inflation across the globe due to many causal factors, including the uneven post-pandemic recovery, the Russia-Ukraine conflict, and tense geopolitics. The inflation impact is seemingly not lost on the public as evident from the survey findings: 41 per cent of respondents cited inflation as the biggest threat to the global economy this year, followed by rising crude oil prices (30 per cent) and widespread uncertainties (30 per cent). Furthermore, about 38 per cent of respondents said inflation will impact their cost of living by more than 20 per cent.

“The last prominent inflation was in the 70s, the data of which is rather thin and inapplicable to modern-day circumstances. In previous inflationary cycles, the curves were flattened through rate hikes, etc. In today’s case, however, with complex causal factors, the possibility of further steepening cannot be ruled out,” said Joseph Graham. “Directly, people are witnessing it through higher domestic fuel prices. Indirectly, the impact will be felt through a rise in transportation and food costs, etc. The impact is across the board,” added Atul Penkar.

“In GCC, oil production has indeed led to cash surplus. However, because these are importing economies, inflation is inescapable. And being pegged to the US dollar, they are essentially importing inflation. For investors, the solution hinges on strategic allocation, preferably in consumer staples, healthcare, tech, financials and energy,” said Neelam Verma, whose belief was substantiated in the audience poll, with 68 per cent of respondents affirming their confidence in equity/stock markets.

Despite noticeable risks of recession, Central Banks continue to remain hawkish. The chances of aggressive interest rate hikes are low due to the risk of inadvertently inducing a full-blown recession. Delving deeper, Graham said that yield curves are not the best indicators of recession probabilities. “The recession, if at all, is unlikely to cause widespread job losses or credit defaults. It’ll be more like a victimless crime.” Atul said that economies with higher debt-to-GDP ratios will be more susceptible to commodity-price shocks.

“Central Banks have a tough choice between excessive inflation or inducing recession. From their standpoint, a far greater decline would be risky as many assets serve as collaterals for the loan,” explained Neelam Verma.

“Investors must exercise caution before exploring portfolio changes for short-term gains from commodities such as energy. Prices can rise rapidly but reversals can happen just as quickly. It’s a good time to review and rebalance your portfolio. Selling recent winners and buying into sectors that have declined may allow you to lock in some gains while ensuring you're not overexposed to the risk of a commodity price reversal,” Neelam added.

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