Most central banks not doing enough to curb inflation: survey

London

IT'S official: investors reckon that central banks are behind the curve on battling inflation - and that value stocks provide the best hedge against rising prices.

Of 886 investors who took part in MLIV's inaugural weekly survey, 73 per cent voted that either "all" or "most" monetary authorities in developed markets haven't done enough to quell inflation.

While headline US inflation has run way above 2 per cent for a year now, the Federal Reserve was purchasing bonds until recently and raised rates for the first time this cycle only last week.

An additional 21 per cent of respondents said only "some" central banks are behind the curve, which may be an acknowledgment that those in New Zealand and Norway have long been raising rates without any fuss.

In the UK, the Bank of England's (BOE) benchmark is now what it was before the pandemic started. However, inflation is running around 8 per cent and may well exceed 10 per cent, a throwback to the era of Margaret Thatcher.

And yet, the BOE keeps reiterating that it foresees only modest tightening - causing inflation expectations to rise further and compelling investors to search for effective hedges on the chance it may fail to prevent spiralling prices.

Talking of hedges, value stocks were the top pick to insulate a portfolio against the corrosive effects of price rises - garnering 35 per cent of the vote - with gold and inflation-linked bonds as distant runners-up.

That preference for value stocks over linkers may stem from the putative ability of companies - especially those with strong brands - to pass on cost increases to customers.

While inflation-linked bonds also provide an effective hedge, value stocks don't compel investors to pick a tenor.

However, inflation hedging preferences vary by region. European investors are less likely to prefer value stocks than their US counterparts. About 24 per cent of European respondents named them as the best hedge, compared to 39 per cent of US and Canadian respondents.

Europeans were more apt to choose gold and oil compared to US peers.

One reason why value stocks may be more preferred in North America is the higher percentage of retail investors there who participated in the survey.

Just 4 per cent of respondents said Bitcoin offers the best inflation hedge, ranking last in a field that included value stocks, gold, inflation-linked bonds, oil and unspecified other assets.

Those who picked the largest cryptocurrency were about evenly split between market professionals and individual investors.

The results undermine the idea that Bitcoin is perceived as a popular haven from inflation eroding the real value of fiat currencies.

Not surprisingly, the conflict in Ukraine was at the top of investor concerns.

Together, "war" and "Ukraine" were mentioned almost 200 times in answers to the question "What do you consider to be the biggest unpriced risk for asset prices?", while China, inflation and recession were the other big worries.

In a prior survey in December, inflation and Covid were the top concerns. The latter is glaring by its absence this time.

The Markets Live team's weekly survey ran from Mar 15 to Mar 18. BLOOMBERG