Even with inflation volatility and high rates, there are opportunities in markets: Principal Global

Todd Jablonski, Chief Investment Officer (CIO) of Principal Global, felt that one of “the most effective currencies” to be able to protect investments from inflation and rising interest rates is the capital markets.

“Stocks are in nominal prices, obviously they include inflation, so maybe I would recommend equity, which is where we always position our multi-asset portfolios to be able to prepare for this rising inflation environment,” the head of investment management at Principal Global said in an interview.

In addition to this, there are also debt markets where real returns can also be achieved, as well as real assets, such as infrastructure and real estate, as inflation continues to rise.

In the United States, inflation stood at 8.3% annual rate in April, while in Mexico it was 7.68% annual rate for the same period.

While U.S. stock indexes remain in negative territory this year, with the Nasdaq retreating 27.88%; the S&P 500 giving up 18.20%, the industrial Dow Jones down 13.93% and the Mexican S&P/BMV IPC down 3.39%, over time investing in stocks is usually an alternative to overcome inflation, he explained.

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“Overall, I think the U.S. stock market is still a hell of a lot lower than it was last year (but it) is positioned to recover from these levels and we’re going to make up for it in the future.”

However, Todd Jablonski stressed that there are very special characteristics that are only available in the U.S. capital market, in particular, the presence of technology companies worth trillions of dollars.

“I think of sectors as relative in terms of how we mix capital, many times we use a benchmark to be able to make these sector decisions for capital allocation I think technology is the key sector right now for future growth,” he explained.

However, he warned that “we must separate the technology that gives profits from the one that is not going to give profits”, for example, technology giants such as Google, Apple and Amazon will continue to give profits, but returns can also be increased with the payment of dividends.

Regarding the Mexican market, he believes that interesting “stories” can be found, but above all, if there is “good diversification”, returns can be achieved. In addition, Mexico’s proximity and economic relationship with the United States gives the market unique characteristics than the rest of Latin America.

“We have seen many foreign institutions that already see much more of the Mexican capital market,” he said.

The chief investment officer at Principal Global stressed that there are external factors to consider, such as the war in Ukraine and that most countries in the developing world have already exhausted all stimuli to inject growth into their economies.

“If we look at the conflict in Europe and compare it to historical examples, I think what we are seeing today fits this pattern of recovery, but I also think you have to apply science to this equation, separate the effect of one thing with others because there are also some constraints in the oil market, also money supplies, inflation concerns.”

Todd Jablonski felt that, at this stage, the Covid-19 pandemic is no longer in the “top three” of investor concerns, rather inflation, interest rate hikes and pressures for world economic growth, though also geopolitical risks.

“The political changes we’ve seen in many places over the last three years, it’s definitely a change from the dynamics of previous decades, which makes it relate to Russia. We’re starting to see companies reevaluate, we’re starting to see a little bit of companies reevaluate how to be able to continue with their business. Everything is changing,” he commented.

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