Amundi: High fragmentation and a new policy mix to dominate H2 investment landscape

Amundi: High fragmentation and a new policy mix to dominate H2 investment landscape

Financiële markten algemeen Vooruitzichten
Outlook vooruitzicht (02)

Investors will have to navigate a fragmented world of slowing growth, higher inflation and increasing divergences between regions and sectors in which policy mix dynamics will be crucial, said Amundi today in its investment outlook for the second half of the year. In this increasingly complex landscape where global trade is no longer the main driver of world growth, investors should look for resilience and seek to exploit opportunities that may arise from de-synchronised economic cycles and diverging paths in fiscal and monetary policy accommodation.

Stagflationary risks appear widespread, with real growth falling below potential and inflation remaining persistently higher than central bank targets. But while a soft landing is a possibility in the U.S, the euro zone looks much more fragile as it bears the brunt of rising energy prices and full-year GDP growth in China should slow below 4% due to Covid restrictions. Within emerging markets, commodities exporters such as Brazil, South Africa and Indonesia are poised to come out on top, as well as countries with the most significant policy room.

Inflation has likely peaked but price pressures should continue to be felt due to supply-chain bottlenecks, high energy and food prices and wage growth in the U.S, bringing the era of ultra-low and even negative interest rate of the past decade to an end. However, according to Amundi, a full normalization of monetary policies is not on the cards as central banks try to balance out the need to tame run-away inflation with that of preserving growth, making central bank “benign neglect” towards inflation a probable outcome. In this context, policy mix dynamics and the extent to which central banks are prepared to accommodate additional fiscal stimulus in the various regions will be key: while the US has almost no fiscal leeway ahead of mid-term elections in November, Amundi expects to see targeted accommodation in China.

Vincent Mortier, Group CIO of Amundi, said: “The era of ultra-low and negative interest rates is over. This will continue to clean up excesses in liquidity-driven areas of the market - Spacs, cryptocurrencies, ultra-growth stocks - and will refocus investors on fundamentals, corporate leverage and earnings. Uncertainty regarding the evolution of the policy mix and on the geopolitical front will continue to keep volatility high, across the board.”

Monica Defend, Head of The Amundi Institute added: “In this complex landscape, investors should look for resilience and opportunities that may arise due to a de-synchronised economic cycle and different paths in fiscal and monetary accommodation. Portfolio liquidity will be at the forefront, as global macro liquidity will progressively dry up.”