Portfolio Implications Of A Higher US Inflation Regime
PGIM Quantitative Solutions explores the dynamics that higher inflation introduces into the broader economy and ultimately, asset returns.
Elevated market volatility drove a sell-off in global equity markets in the first quarter. Europe was hit hardest with a deep sell-off from the invasion of Ukraine. Emerging markets were weak given rising geopolitical uncertainty, a strengthening U.S. dollar, and increased concerns over Federal Reserve tightening. The panic and reflux trade post invasion is now over and markets have shifted their focus back to general macro drivers. Going forward, emerging market regions that have already cycled through macro drivers, like central bank tightening, may offer better growth opportunities.
We continue to find the best growth opportunities clustered around the same secular themes we’ve seen drive market leadership and profit growth over the past two years. But, we’re not going to fight the tide (or the Fed). Instead, we are focused on finding secular growth opportunities that can weather the changing macro environment.
Risks— Investing involves risks. Some investments are riskier than others. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, and political and economic uncertainties. Investments in securities of growth companies may be especially volatile. Due to the recent global economic crisis that caused financial difficulties for many European Union countries, eurozone investments may be subject to volatility and liquidity issues. Illiquidity risk, which exists when particular investments are hard to sell; geographic concentration, which can result in more pronounced risks based upon economic conditions that impact one or more countries or regions more or less than other countries or regions; and derivative securities, which may carry market, credit, and liquidity risks. Emerging markets are countries that are beginning to emerge with increased consumer potential driven by rapid industrial expansion and economic growth. Investing in emerging markets is very risky due to the additional political, economic, and currency risks associated with these underdeveloped geographic areas. Value investing involves the risk that undervalued securities may not appreciate as anticipated. It may take a substantial period of time to realize a gain on an investment in a small or midsized company, if any gain is realized at all. Asset allocation and diversification does not guarantee profit or protect against loss. The investment return and principal value will fluctuate, and shares, when sold, may be worth more or less than the original cost.
The views expressed herein are those of Jennison Associates LLC (“Jennison”) investment professionals at the time the comments were made and may not be reflective of their current opinions and are subject to change without notice. This commentary is not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services. This commentary does not constitute investment advice and should not be used as the basis for any investment decision. This commentary does not purport to provide any legal, tax, or accounting advice.
Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information, nor do we make any express or implied warranties or representations as to the completeness or accuracy. Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated, based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.
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