Inflation debate volatility will define stock markets in the second half of 2021, and investors need to be “super-selective” and ensure “proper diversification,” to take advantage of the turbulence, warns the CEO of one of the world’s largest independent financial advisory and fintech organisations.
The warning from Nigel Green, deVere Group CEO and founder, comes ahead of the release of inflation figures for the biggest economy in the world.
The U.S. CPI is predicted to rise to a 13-year high of 4.7% from a year earlier, up from 4.2% in April – which was already the fastest jump since 2008.
Mr Green says: “Global financial markets are bracing for further turbulence as attention focuses on inflation for the world’s largest economy.
“A larger-than-expected rise in U.S. core inflation and a retreat in commodities and equities may result in a sharp increase in volatility across most asset classes.
“It will stir fears that central banks will be forced to row back from policies that have kept interest rates low, driven liquidity and provided fuel for the stock market gains.”
He continues: “If inflation is lower than expected, the rising prices will more likely be seen as transient, and that they will fade after pent-up consumer spending drops back and the supply bottlenecks ease.
“Either way, today’s inflation figures won’t end the debate amongst investors – in fact, it will get hotter – as it remains too early to say either way about whether inflation is transient or persistent.
“This debate will stir-up volatility which will define the second half of 2021 in global financial markets.”
This market turbulence demands that “investors ensure proper diversification of their portfolios” if they are “serious about creating, building and safeguarding wealth,” says Mr Green.
Diversification is universally regarded as investors’ best tool to mitigate risk and seize opportunities. A sufficiently diversified portfolio covers geographical regions, asset classes, sectors and currencies.
The deVere CEO goes on to add: “We can expect a stronger than had previously been forecast global economic rebound this year, particularly in developed economies.
“We are likely to see the fastest growth in decades – and investors will want to capitalise on this.
“But as the world readjusts investors must be super-selective as there will be ongoing volatility.
“We saw this last month with the tech sell-off – although nobody seriously believes the future isn’t going to be tech-driven. As such savvy investors were drawn to the massive growth that tech offers and used the sell-off as a buying opportunity.”
Mr Green concludes: “This is a major day for the markets. The inflation argument is here to stay for at least the rest of 2021, stirring up volatility. Investors need to shore-up their portfolios to seize the opportunities that this will provide.”