Investing currently is like “tap dancing on a tightrope”, according to Morgan Stanley, as asset allocators try to navigate volatile markets, rising inflation and the possibility of rising interest rates.
In a webinar with Morgan Stanley and SG Hiscock, Alex Gabriele, managing director with the international equity team at Morgan Stanley, said there was a narrower set of opportunities available for investors nowadays.
“Investing is a bit like tap dancing on a tightrope moment. You’re constantly trying not to fall off. It’s going to become ever more dramatic, there’s going to be a shark tank below the tightrope.
“You are constantly trying to trade off the quality of earnings growth prospects and valuations and there’s a narrower and narrower set of opportunities that you’re comfortable with in those trade-offs. That is not unique to equities, that’s across all types of assets.”
Regarding inflation which had been rising globally over the last few months, Gabriele said the thinking had moved from whether it was transitory to how big the rise would be.
He said: “As the first quarter has progressed and the situation in Ukraine has evolved, the question around how long inflation lasts has disappeared into the background and it’s become more about magnitude and how big inflation is going to be.
“Then we’ve had this weird logic around which means they won’t raise rates as fast because of the strain in the system or whether rates will or won’t go up and how fast. Traditionally, if you thought inflation was going to be higher for longer then you would expect rates to go up further but there doesn’t have to been that linear connection between those two concepts.”
Interest rates were expected to be raised multiple times this year in Australia to reach 2023 at 1.25% compared to 0.10% currently.