Global investment manager VanEck has warned that a stagflation scenario could be on the cards, following widespread complacency around inflation.
VanEck Asia Pacific CEO Arian Neiron said that the combination of low growth and volatile inflation meant that stagflation is a possibility that should not be dismissed.
“Because of the Fed’s dovishness, growth has continued its dominance over value. But we are seeing that situation reverse,” he said.
Mr Neiron suggested that rising inflation threats could see the US Fed bring forward its plans for tapering from 2022, noting that the firm is already seeing a move away from the tech giants and increased pressure on the NASDAQ.
“When that correction is done, there could be opportunities,” he said.
Specifically, Mr Neiron predicted that “the biggest beneficiaries will be cyclical companies, value companies and small caps.”
He explained that this is because value companies tend to be less sensitive to changes in macroeconomic conditions, leading to strong performance as inflation and interest rates increase.
“Gold will shine as financial risks grow,” Mr Neiron added.
When it came to Australia’s economy, VanEck’s latest quarterly ViewPoint report predicted a similar bounce to that seen during the second half of 2020.
However, the report also noted that two key factors that have helped Australia’s economy during the pandemic – the high price of iron ore and closed borders – are set to unwind in the coming months.
“The reopening will see cashed-up, cooped-up Aussies flee overseas. On the other hand, reopening could see a rapid return of the foreign education dollar,” the report said.
VanEck’s freshly-inked caution over stagflation came following an outright dismissal of the possibility by Oxford Economics.
A report issued by the latter in September suggested that fears of both runaway inflation and stagflation are misguided.
“With demand cooling and supply gradually rebounding, we expect inflation to cool in the coming quarters,” Oxford Economics predicted.
