Inflation

Adapting to inflation: a bottom-up view

Tackling inflation is the topic-du-jour for companies across the globe. For investors, building resilient portfolios that can thrive in this environment will be key to capturing sustainable returns. 

Jul 16, 2021

5 minutes

Rhynhardt Roodt
Christine Baalham
Jonathan Parker
Tackling inflation is the topic-du-jour for companies across the globe. For investors, building resilient portfolios that can thrive in this environment will be key to capturing sustainable returns. 

The fast view

  • The post-pandemic economic recovery is unusual in its combination of a sharp rebound in activity, unprecedented stimulus and supply-chain shortages — leading to the longest delivery times in the US in almost 50 years. These recovery dynamics are creating uneven inflationary pressures globally.
  • Whether or not inflation proves transitory, investors still need to be mindful of how companies are likely to be impacted as pressures emerge.
  • Many businesses have benefitted from the recovery and margins in some places are at record highs. However, market sentiment has become more muted with some investors sceptical about how sustainable margins are, given rising costs.
  • As these price increases filter through supply chains, we believe that company second-quarter earnings are likely to diverge as sectors face different inflation challenges.

In this viewpoint, we assess the many nuances that influence companies’ ability to pass on price increases by looking at how inflation impacts particular sectors and how companies are responding. We also consider how they are likely to fare if inflationary pressures persist in order to help us build resilient portfolios for our clients.

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Specific risks
Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income. Derivatives: The use of derivatives is not intended to increase the overall level of risk. However, the use of derivatives may still lead to large changes in value and includes the potential for large financial loss. A counterparty to a derivative transaction may fail to meet its obligations which may also lead to a financial loss. Equity investment: The value of equities (e.g. shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g. insolvency), the owners of their equity rank last in terms of any financial payment from that company. Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.

General risks
All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results. Investment objectives and performance targets are subject to change and may not necessarily be achieved, losses may be made.

Authored by

Rhynhardt Roodt
Portfolio Manager
Christine Baalham
Portfolio Manager
Jonathan Parker
Portfolio Manager

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

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