Investors are blind to real inflation outlook and are under-estimating the level of rate rises in the coming year, Citywire + rated Charles Zerah has said.
Speaking to Citywire Selector at Carmignac’s annual investment conference, Zerah, who runs Carmignac Pfl Global Bond fund, said the deflationary scenario of the last few years had created complacency.
‘I think people don't want to believe that rates can go much higher because people don't believe that inflation is round the corner,’ he said. ‘People have in mind that what has happened during the 10 years, with deflationary risk, is still here.’
‘After years of difficulty, we have seen a recovery in European countries, as Europe grew at a rate above the US, but, people are overlooking that. I don't know what will happen this year, or if the growth rate will stay above the US, but growth in Europe is here.’
Zerah said China’s announcement of a significant infrastructure plan early last year had given commodities a boost, which further contributed to the global growth outlook.
While Europe remains resilient, Zerah said US companies could grow even faster if they increased capital expenditure, which was missing from the current cycle.
‘That cycle is coming back and central banks do not have the same power to implement measures that were working in the past. This balance sheet recession that we have seen in the US, Europe and Japan is perhaps not yet over, but they are in much better shape than years ago.’
Zerah is keen to play the rise in commodity prices and believes export-focused emerging markets will be positively impacted by rising oil prices. However, Zerah is avoiding Venezuela, as he said companies there are still suffering from historical problems.
‘The political risk is so high in this country and the risk of default is pretty high as well. It is very difficult to have any visibility in the short term. The problems that they have had in the past 10-15 years has damaged their energy corporates,’ Zerah said.
‘They were not able to benefit from the oil rebound last year or this year. That is why we are staying away from Venezuela for the moment. As soon as we see visibility coming from the political side, we will have a look but for the moment for us it is not really worth it.’
Over three years to the end of December 2016 the Carmignac Pfl Global Bond fund lost 1.49% in US dollar terms. This compares to a fall of 0.43% by its Citywire-assigned benchmark over the same time frame.