Inflation and interest rate increases top list of global concerns for investors

Many believe inflation will last more than 12 months despite central bank intervention, new UBS survey finds

A trader at the New York Stock Exchange. Investors in the UAE are concerned about market volatility amid rising inflation and looming interest rate increases. AP

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Rising inflation and looming interest rate increases are key concerns for high-net-worth investors globally, according to a new survey by Swiss wealth manager UBS.

Higher prices for goods, fuel and energy have investors worried, with many believing elevated inflation will last more than 12 months, the UBS quarterly Investor Sentiment survey found.

However, stock market volatility is the biggest concern for investors in the UAE, where 95 per cent of respondents to the survey – which polled 3,000 investors and 1,200 business owners across 15 markets – said they wanted more guidance than usual from advisers on how to navigate the current environment.

“Given high levels of inflation and interest rate hikes on the horizon, investors are waiting for the right moment to put their money to work,” Iqbal Khan, co-president of UBS Global Wealth Management, said on Tuesday.

The Covid-19 pandemic era of low interest rates and fiscal and monetary stimulus is drawing to a close, with rising inflation forcing the US Federal Reserve and other central banks to tighten their monetary policies.

In January, the Fed said it would phase out its monthly bond purchases and begin raising its benchmark interest rate from March to rein in inflation.

Meanwhile, stock markets had their worst start to the year since 2016, falling by double-digit figures in January alone, Olivier Marciot, senior portfolio manager at investment management company Unigestion, said in a recent interview with The National.

Investors are likely to remain worried and stir up volatility in stock markets in the coming days, Naeem Aslam, chief market analyst at online broker Ava Trade, said in a research note on Tuesday.

“The American central bank has already hinted that it is likely to start interest rate lift-off next month, but the number of interest rate hikes to be held in 2022 and by how much they are going to be raised is still a mystery,” Mr Aslam said.

“The Bank of America added its two cents to the debate on Monday, stating that the Fed could raise interest rates by 0.25 per cent seven times in 2022.”

Globally, two thirds of investors hold more than 10 per cent of their portfolio in cash and nearly half claim to be “waiting for the right opportunity” to invest, the UBS survey said.

If they do choose to invest, 60 per cent of investors said technology and health care were “attractive sectors”.

Given high levels of inflation and interest rate hikes on the horizon, investors are waiting for the right moment to put their money to work

Iqbal Khan,
co-president of UBS Global Wealth Management

“With the effects of Covid-19 expected to impact the healthcare industry for years to come and a shift to a more digitalised world, investors see further opportunities in these sectors,” Mr Khan said.

Meanwhile, 82 per cent of US investors want President Joe Biden’s administration to make controlling inflation a key priority, the survey found.

Investors in the US also believe that inflation will continue throughout 2022, while almost 50 per cent of the survey’s respondents said they were concerned about a market downturn.

“Amid the market volatility, US investors are also considering adding stocks and portfolio hedges, putting cash to work and borrowing ahead of potential rate rises in the form of new and refinanced mortgages and security-backed loans,” the survey said.