UBS CIO “Stagflation, no one is properly prepared” < International News < Text of article

(New York = Yonhap Infomax) Correspondent Jinho Jeong = Analysis has shown that no one is properly preparing for a scenario in which the U.S. economy enters stagflation.

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On the 26th (local time), Mark Haefel, Chief Investment Officer (CIO) of UBS Global Wealth Management, said, “I am not worried about just one indicator,” in response to concerns about stagflation due to the preliminary US gross domestic product (GDP) for the first quarter announced the previous day. “No one is properly prepared for such a scenario and it is difficult to hedge,” he said.

He said, “Even if there is just a hint of fear like stagflation, people get nervous and the market reacts. However, since the COVID-19 incident, indicators have continued to worsen, and we really need to pay attention to this trend.”

For example, in terms of workers, as the gig economy (a form of temporary work assigned as needed) has become active, the headline indicator has become less reliable, Heppel emphasized, adding, “You can’t define something by looking at the GDP indicator alone.”

He said he is an optimist and predicted that inflation will ease further starting in the second half of this year, creating conditions for the Federal Reserve System (Fed) to lower the base interest rate. He also added that the United States will not be disconnected from the global trend of slowing inflation.

At the same time, he selected value stocks as one of the investments that can protect against stagflation if it occurs.

Heppel said in an interview with MarketWatch, “Value stocks with strong balance sheets can weather the economic slowdown and don’t have to worry too much about refinancing issues in the short term. They also have pricing power, so they will be the best defense.” claimed.

He said, “The risky scenario is that the U.S. economy is still hot and inflation is also hot for the time being. In that case, value stocks and high-credit rating bonds would really be preferred, and I recommend investment grade bonds with a duration of 5 years.”

Heppel said that if a pessimistic scenario where the 10-year interest rate goes up to 6% develops, stock prices will plummet, but he predicted that the 10-year interest rate will fall to 3.85% by the end of the year.

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This article was published on the Infomax financial information terminal at 23:53, two hours earlier.