Global inflation is picking up
First State Investments anticipates higher global inflation this year as major economies move towards full capacity.
With inflation on the up and an improving picture for employment, as well as concerns over financial stability with rising asset prices, major central banks are beginning to end monetary stimulus, all except the Bank of Japan.
Harman said over the medium to longer term, the reduction in central banks’ balance sheets should result in developed market sovereign bonds having a higher term premium. The shift from monetary easing to fiscal easing to stimulate growth could also potentially accelerate the rise in interest rates.
“As a result, the First State team continues to hold inflation-linked bonds in the UK and US, which we invested into in early 2016, and is avoiding exposure to nominal government bonds in the UK, US and Japan,” he said.
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