The following paper was originally written in October 2019, in response to a client question about the possible impacts of a stagflationary environment on long-term asset owners’ portfolios. At the time, the risk of stagflation seemed a remote possibility. However, the unprecedented fiscal and monetary stimulus provided by central banks and governments in response to the Covid-19 pandemic has prompted a fascinating debate in economic circles, between those who see the sudden and widespread impact on consumption precipitated by the crisis as having a deflationary effect, and those who view inflation as the inevitable result of the unprecedented supply shock and injection of capital into developed economies. Regardless of which side of the inflation debate one takes, the post-pandemic state of the global economy merits consideration. In light of that, we are sharing our insights into the potential implications of a stagflationary environment on asset owners’ portfolios and the possible solutions that can be put in place to mitigate its effects.
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