View of the Day on tips oct 14

View of the Day on tips oct 14 - versus risk-free assets...

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QE will make inflationary waves for investors By Graham Secker Published: October 13 2010 17:00 | Last updated: October 13 2010 17:00 Once the initial enthusiasm for any renewed bout of quantitative easing wears off, markets are likely to start considering the longer-term implications of a rise in inflation expectations, says Graham Secker, chief European equity strategist at Morgan Stanley. “US inflation has been trending down for several years, but a number of indicators suggest it could trough soon,” he says. “For example, US rents are increasing, input prices are rising and capacity utilisation rates are recovering.” And while he does not expect a big rise in inflation, Mr Secker argues that even a modest uptick would be likely to have significant implications for asset allocation. “Investors should increasingly view the equity versus bond debate as real versus nominal assets, as opposed to risky
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Unformatted text preview: versus risk-free assets. “Over the past 30 years, every trough in core US CPI has coincided with a period of rising bond yields. Longer term, bond investors are unlikely to lose money in nominal terms, but at today’s low yields even a modest uptick in inflation will drag on real returns. “However, the prospect of higher inflation should be good news for equities , at least initially – especially relative to bonds. And if asset allocators start to switch out of bonds and into equities, the upside for stocks could be substantial, given the relative size of the two asset classes.” Copyright The Financial Times Limited 2010. Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others....
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