There can be no doubt that a single issue is weighting disproportionately on the minds of investors today, and that this issue is likely to remain the preeminent concern for some time to come. After a decade of negligible inflation, 2022 has seen prices increase across developed markets at paces not seen for 40 years, and investors are legitimately worried about how this will affect the value of their savings and the future cash flows they will depend upon.
Based on the trends we can observe in today’s markets and our forecasts for the immediate future, the Shojin view can be summarised as follows:
1. Contrary to the past decade where other factors took prominence, inflation currently represents the most significant threat to both fixed income investments as well as equities.
2. This situation is likely to persist for 12-18 months before stabilising again and will almost certainly necessitate further rate rises from central banks to bring inflation down to the 2% target set by the Bank of England.
3. The combination of sustained and high inflationary pressure with rate rises and generally tighter monetary policy constitutes a radically different macroeconomic environment, and investment approaches accordingly need to be rethought.
4. Alternative investments will have a growing role to play in this new context, and within this overall category it is real estate that offers one of the best possibilities to outrun inflation.
5. Lastly, the unique combination of benefits attributable to real estate as an asset class (diversification, income yielding, capital appreciation, etc.) will shine ever more brightly in the immediate inflationary context.
Download special report - real estate versus inflation - which substantiates our view as summarised above, and presents some of the arguments and evidence that have led us to this perspective.