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What’s spooking your clients’ portfolios this Halloween?

  • Inflation is rising
  • Central Bank policy is uncertain
  • Valuations are toppy across the Pond

Emma Wall, Head of Investment Analysis and Research at Hargreaves Lansdown:

“All Hallows Eve is here and for investors there are a few spectres in the gloom. Markets are digesting the tricks and treats of Rishi Sunak’s Autumn Budget, but while there was good news for pubs, petrol prices and pension savers, the Resolution Foundation has calculated that the Chancellor’s measures will leave the average household £3,000 worse off.

So, as well as potentially having less money to save into your ISA or SIPP, what other ghouls should investors be wary of this Halloween?

Inflation for one. Here in the UK we’re running at 50% above target, but it is not just a domestic issue. Brazil has just hiked interest rates in a bid to tackle double-digit inflation, and over in New Zealand the market is forecasting five to six rate rises over the next couple of years to counter the impact of inflation. In China, the Producer Price Index hit 10.7% this month, the highest on record.

In the UK, there is less clarity on how the Bank of England intends to proceed. While the Governor Andrew Bailey is signalling to markets that a rate rise is imminent, the voting record of the Monetary Policy Committee is less decided – only two of the nine members voted to raise rates in the last meeting. Markets hate uncertainty, so this lack of alignment is not good news for volatility in the short term.

What can investors do to counter inflation?

First recognise that overhauling your portfolio on every policy hint or rumour is only guaranteed to deliver losses. Instead, focus on your long-term goals, and be valuation aware. Globally, there are parts of the market which are looking expensive – the US, tech stocks, growth-style investments have all had a great run, and it may be time to trim those gains and look to invest in undervalued assets instead, particularly those that can pay as sustainable dividend. Even if you are not looking for income, the power of compound interest will help you weather higher inflation, and reinvesting dividends through market volatility helps smooth your total return.”

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