Inflation was the main topic of discussion on the capital markets podium. In a live TED survey, 67 percent of participants in the hall said that they believe it will take another two years or more for inflation rates in Europe to fall back to 2% to 3%. Dr. Martin Lück, Head of Capital Markets Strategy for Germany, Switzerland, Austria and Eastern Europe at BlackRock, was a little more cautious in this regard, explaining that this ultimately depends on inflation expectations. If it becomes clear that central banks can live with higher inflation, then expectations will rise and it will take longer for rates to decline again. Although central banks will accept entering a recession, Lück does not believe they will go down the Volcker route of continuing to drive interest rates higher and thinks they will halt the cycle of rate hikes at some point.
Dr. Christian Rouette, Managing Director, Henkel Family Office, added that central banks need to learn a new way of doing things: “In past crises, central banks supported the capital markets. Now they are pursuing their actual goal of managing inflation.” He then turned his attention to alternative asset classes, because as the representative of a family office he can make investment decisions more freely than regulated investors. Investments in private markets, and especially in infrastructure and renewable energy, proved particularly helpful during the challenging environment of 2022. High-yield engagements also performed well, and as a global investor with dollar-denominated interests, the currency effect also had a positive impact on performance.
Melanie Kümmel, CEO of TK Pensionsfonds AG, made the case for bonds in the face of rising interest rates: “We’re finally getting interest again, with European corporates at over 4%, for example, so higher risk is being rewarded once more.” She argued that this makes interest-bearing products significantly more interesting than they have been in recent years. While this means her company is once again rebalancing in the direction of bonds, she believes there is still a place for equities in the long-term portfolio. “We are sticking to our ratios and looking even more closely at active management.
Alexander Raviol, Partner, CIO Alternative Solutions at Lupus alpha, expects inflation to level out, albeit with fluctuations, at a significantly higher level than in recent years, and that even considerably higher interest rates will remain below inflation. This, according to Raviol, still makes equities indispensable. As a result, a capital protection strategy represents a good solution for investors who want to stay in the equity market yet also need to work with a limited risk budget, as long as they are not knocked out as the markets continue to fall and can respond as soon as the markets move upwards once again. In any case, Raviol is convinced that equities can still generate returns even in an inflationary environment, as demonstrated by Turkey, where eurozone investors were able to enjoy performance, calculated in their own currency, of around 60 percent in 2022.
The results of the TED survey can be found at: TED Survey.