Probable shift to reflation is set to alter asset classes that can be expected to deliver real returns
Conditions have changed substantially over the past 18 months and we believe the weight of the evidence suggests that the market has probably reached an inflection pointThe probability has shifted towards a more reflationary global backdrop, which the market is not yet pricing in.
Developed market fiscal and monetary policy has changed dramatically over the past 18 months, particularly in the US. The Covid-19 crisis showed governments that they could run much higher budget deficits than historically considered prudent alongside extremely accommodative monetary policy. Current and projected fiscal spending at levels previously only seen in wartime, is now considered acceptable policy.
Low and stable inflation is good for the general health of the economy providing stability for businesses on input costs and cost of funding, and is supportive in general of real growth as it allows for lower and narrower moves in interest rates. Commodities make up a large share of SA’s exports and has provided much-needed support for SA’s high debt levels.
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