Banking the dividends from recovery

Summary

  • Podcast: Japan
  • Video: Investment Strategy highlights, May
  • An inflation air pocket hits markets
  • Is higher inflation really only going to be a temporary phenomenon?
  • Value stocks get help from higher inflation expectations
  • Banks lead the value charge higher

Podcast: Japan - the Land of the Rising Sun, Where are the hidden pearls?

The Land of the Rising Sun, where are the hidden pearls?

  1. What economic challenges does Japan face in view of its atypical economy and demographics?
  2. How will Prime Minister Suga carry out his reforms to spur growth?
  3. The Japanese have managed the Coronavirus better than most and the figures reflect this. What is their secret?
  4. Is the pledge to be carbon-neutral by 2050 feasible?
  5. What industries do the Japanese particularly excel at?
  6. Why do you like Japan from an investment point of view?

Investment Strategy Video: May highlights

BNP Paribas Wealth Management: Investment Strategy Video: May 2021

Inflation air pocket hits markets

We all knew that US inflation figures were going to leap this month, given the weak level of economic activity a year ago, the widespread shortages appearing as a result of delayed imports and also the effect of higher commodity prices (gasoline, food…).

But even armed with this knowledge, investors were still surprised by the strength of US inflation, with prices on average 4.2% higher than a year ago according to CPI.

US CPI hits 4.2%

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Source: St Louis Fed

The knee-jerk reaction to this higher inflation out-turn was a jump in long-term US bond yields to nearly 1.7%, and a sell-off in stock markets led down by growth stocks in Technology.

But if you look at the chart of long-term interest rates (10-year bond yields), the surge in yields since the beginning of this year is obvious, led by the US and UK which have historically been more inflation-prone economies. In the US, yields have risen by 1.4% over this period, while they have risen by 0.7% in the UK.

US, UK 10-year bond yields have surged since October 2020

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Source: tradingview.com

So far, the global economy has been able to absorb this rise in long-term interest rates due to the strong recovery growth currently in the pipe. In addition, do not forget that even after this rise in yields, that they…

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