Chart(s) of the day - Morgan Stanley’s stagflation matrix:
From the MS asset allocation committee, which includes FT Alphaville favourites Stephen Jen and Teun Draaisma:
Inflation risks plague all portfolios. Investments across regions and asset classes are all affected by inflation’s surge to multi-year highs. In 80% of developed and emerging market countries where central banks have inflation targets, inflation now exceeds them.
A new inflation regime. We expect inflation to be higher and more persistent in the next several years than what is priced into bond markets and what consensus forecasts suggest.
From tailwinds to headwinds. Deregulation, globalization and strong productivity growth helped central banks to keep inflation low over the past 20 years. Now, re-regulation and protectionism are making a comeback, globalization has turned inflationary, and productivity growth has ebbed.
It’s global, not local. Don’t bank on the economic slowdown to dampen inflation pressures much. Our research suggests inflation has become globalized. Thus, to keep inflation on target, central banks would have to engineer severe recessions. Most will lack the resolve to do so.
And here’s the ppt slide showing the end of the Goldilocks era - welcome to the new inflation regime:
Where do you hide? Here are the MS “group picks”:
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