Should ASX investors be fearful of greed in the face of inflation?

ASX investors are turning their attention to the potential risks and rewards as rising inflation fears present some opportunities.
The post Should ASX investors be fearful of greed in the face of inflation? appeared first on The Motley Fool Australia. –

ASX investors are turning their attention from the potential risks and rewards thrown up by the pandemic to how best to play rising inflation fears.

Fear sets in when the wider financial news narrative indicates that the resurgent inflation witnessed across much of the developed world could be entrenched. Meaning central banks may be forced to raise official interest rates from their rock bottom lows. A move many shares on the ASX almost certainly won’t like.

Greed sets in when the narrative, widely supported by the central bankers themselves, shift to indicate that the current price rises are only transitory. Meaning inflation over the coming few years will remain subdued. Interest rates will remain at record lows. And shares on the ASX will continue to enjoy that welcome easy money tailwind.

Inflation’s outlook for the ASX

For a better idea of how to position your ASX investment portfolio as inflation re-emerges following a lengthy hibernation, we turn to the experts.

According to UBS Global Wealth Management’s Chief Investment Officer Mark Haefele (quoted by Bloomberg):

Investors should brace for further bouts of volatility, driven by inflation data along with other risks, such as setbacks in curbing the pandemic. But we don’t see inflation concerns ending the rally in stocks, which we expect to be led by cyclical parts of the market as the global economic reopening broadens.

Inflation’s impact on the ASX was a hot topic at yesterday’s Stockbrokers and Financial Advisers Association conference as well.

Jun Bei Liu, portfolio manager at Tribeca Investment Partners, said (quoted by the Australian Financial Review):

It’s too early to call if inflation is structural, it seems like it’s transitory but we have to take another six months before we know if it’s long standing. In this environment, you want to be in companies that can pass on that inflation and these are the leaders of the sectors – pick them up as they get sold off because we don’t know how long this inflation will last.

Andrew Smith, head of smaller companies at Perennial Value Management added:

Inflation does influence the cost and price of money and naturally pushes people towards cash flows that are more near-term, so yes, it pushes people towards more value style investments. But it can be dangerous for some value stocks too. Value stocks sometimes have low margins, low pricing power and that’s where inflation will kill your earnings.

Which shares are looking promising in 2021?

Tribeca’s Liu has a broadly bullish outlook for the ASX this year. She points to Treasury Wine Estates Ltd (ASX: TWE) and Xero Limited (ASX: XRO) as companies that look particularly well-positioned.

The market is looking really strong towards the end of the year so you want to buy businesses where its share price doesn’t reflect its strong business model such as Treasury Wine Estates and growth leaders such as Xero.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

More reading

Why the Afterpay (ASX:APT) share price is up 10% this week
Why a2 Milk, EML Payments, Webjet, & Xero shares are pushing higher

2 excellent ASX 200 blue chip shares to buy

2 high quality ASX 50 shares given buy ratings

Which ASX 200 shares withstood today’s selloff?

The post Should ASX investors be fearful of greed in the face of inflation? appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!