Schroders flags continuation of inflationary risk and rising growth concerns


As markets remain caught between concerns about rate increases and the risk of recession, Schroders warns that the current economic cycle may be approaching its end, and that the risk of stagflation has “significantly increased”. Coupled with other uncertainties, investors will need to brace themselves for continued volatility in the second half of 2022, or even beyond.

Whilst central banks around the world are acting to control inflation, Keiko Kondo, Head of Multi-Asset Investments, Asia, Schroders, said keeping a close eye on the consequences of rising rates will be critical.

Keiko Kondo said: “Right now, central banks are focused on normalising policies above all else. This is mainly due to the fact that traditional inflation models are vulnerable to supply bottlenecks caused by a myriad of unprecedented sources. These include changes in post-pandemic spending patterns, Covid lockdown measures, and an ongoing conflict between Russia and Ukraine.”

“Although we continue to believe global economic growth for the whole of 2022 is reasonably well underpinned, with liquidity tightening and growth potentially peaking, downside pressures on both equities and fixed income assets remain high. With rising interest rates, we see a bit of room to hold on to relatively more cash in a diversified portfolio and be patient in waiting for better times to deploy that cash. Our cyclical models are pointing to a shift into the ‘slowdown’ phase, which is typically the most challenging phase of the cycle for equities,” Keiko Kondo added.

The firm remains conservative on equities, particularly focusing on areas of secular growth in Asia and value-oriented global companies that are involved in semiconductor, sustainable food and water, and smart manufacturing.

“Zooming in on Asia, we are starting to turn more positive toward Chinese equities. With our concerns about rate increases dominating our views in other markets, recent data indicates the likelihood of looser monetary policy in China, and this together with attractive valuations present us with a relative opportunity versus broad markets.”

On the fixed asset front, global valuations look relatively more attractive but remain vulnerable to further increases in interest rates.

Keiko Kondo commented: “Asian credit is less susceptible to global fund flows, thanks to a larger domestic investor base in the region. Besides, the asset class has a higher quality composition compared to other emerging markets. However, we must note that rate volatility and macro risks are still in the rear-view mirror. Therefore, we would at this point prefer bonds that are of higher quality and with shorter duration.”

Owing to potential negativities over the near-term outlook, Schroders thinks that gold, broader commodities and currency can be viable means to diversify portfolios.

“Given the increasing divergence in monetary policy between the US Federal Reserve and the European Central Bank, our current view is that the US dollar can act as a portfolio diversifier that hedges some of investors’ unwanted risks,” Keiko Kondo added.

Important Information

The contents of this document may not be reproduced or distributed in any manner without prior permission.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect nor is it to be construed as any solicitation and offering to buy or sell any investment products. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Any security(ies) mentioned above is for illustrative purpose only, not a recommendation to invest or divest. Opinions stated are valid as of the date of this document and are subject to change without notice. Information herein and information from third party are believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.

Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. You may not get back the full amount invested. Derivatives carry a high degree of risk. Exchange rate changes may cause the value of the overseas investments to rise or fall. If investment returns are not denominated in HKD/USD, US/HK dollar-based investors are exposed to exchange rate fluctuations. Please refer to the relevant offering document including the risk factors for further details.

This material has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.

Follow us
Follow us

Contact Us

Level 33, Two Pacific Place, 88 Queensway, Hong Kong

(852) 2521 1633

Online enquiry: Please complete the web form below and we will reply as soon as possible.

Contact us

The investments mentioned in this website may not be suitable to all investors. The information contained in this website is provided for reference only and does not constitute any investment advice. Investors are advised to seek independent advice before making any investment decision.

Investment involves risk. Past performance is not indicative of future performance. You should remember that the value of investments can go down as well as up and is not guaranteed. You may not get back the full amount invested. Please refer to the relevant offering document including the risk factors.

This website is intended for Hong Kong residents only. Non-Hong Kong residents are responsible for observing all applicable laws and regulations of their relevant jurisdictions before proceeding to access the information contained herein. Schroder Investment Management (Hong Kong) Limited is regulated by the SFC. The website (excluding Schroder Provident Plan related pages) has not been reviewed by the SFC.

The website is issued by Schroder Investment Management (Hong Kong) Limited.