Some of the biggest Nordic pension funds are currently considering what reflation might mean for the investment strategies, writes IPE.
Danica Pension CIO Poul Kobberup told IPE that a lot is already priced into markets for rising inflation, and these effects will probably disappear in a year’s time.
Inflation could rise in the short term, he said, but the longer term trend – due to technological development and globalization – is the price of stability.
"The market was nervous last week, with some people expecting the Fed to raise the short-term rate already, but there is still a lot of unemployment, so I don’t see any big risk that central banks will move in that direction," said Kobberup.
"In general we believe that stable inflation rates and maybe a slightly increasing consumer price trend provide a good environment for asset classes," he said.
In Finland, Ilmarinen's head of cross-asset allocation Esko Torsti, accepts that inflation will accelerate during the next couple of years, which might create a bumpy ride for markets.
In an environment with an expanding money supply but subdued movements in real yields, Torsti told IPE that Ilmarinen preferred relatively short duration in fixed income investments.
Sector rotation would continue in equity markets, he said, and sectors covering energy, financials and materials may benefit, but utilities and real estate could suffer in the short run.
"Commodities could be well supported, although they have already shown signs of increased prices," Torsti said.