With the McDonald’s milkshake crisis and KFC and Nando’s running short of chicken, some may want to explore what the creaking supply chains will mean for investors. Tom Stevenson, investment director at Fidelity International said: “There’s a common theme running through this week’s economic data releases and the company results announcements in the recent second quarter earnings season.
“The composite purchasing managers’ output index fell to 55.3 from 59.2 – worse than expectations and the lowest in six months.”
This is because of the soaring transport prices, and the shortages of raw material. These factors, as well as the impact on Brexit may be causing companies to suffer.
He continued: “It’s the same story across the Atlantic. US business activity slowed for the third month in a row in August. Shortages of raw materials and labour are holding back output and pushing up inflation, according to IHS Markit, which compiles the figures.
“Business activity in Europe is still strong. The same PMI data was close to a 15-year high. But here, too, companies are struggling to fill empty positions and keep up with rising input costs.”
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Mr Stevenson added: “Recent decades have seen low wage growth and tepid price inflation as the world has absorbed a surplus of workers and too many rather than too few manufactured goods.
“One of the unexpected consequences of the rebound from the pandemic is a change in the economic weather. The world we seem to be moving towards looks a lot more like the pre-globalisation 1970s than more recent decades.”
So, what are investors to do?
Fidelity International spoke to James Thomson, manager of the Rathbone Global Opportunities Fund, who flagged up these trends as key themes in how he is shaping his portfolio.
“As always, a balanced portfolio across different sectors and countries can help investors during bumpy times,” he explained.
However, Mr Thompson also highlighted that for some companies, increased pricing power means that earnings may be lifted in certain industries.
What about my portfolio?
Mr Thompson has started to factor the inflationary environment into the way their funds are positioned as a way to mitigate any loss, however there are other ways to mitigate the impact of rising prices in an investment portfolio too.
Mr Stevenson said: “Gold has traditionally been a good hedge against inflation, although it has lost its lustre as a safe haven somewhat recently.
“Infrastructure investments can provide some protection against rising prices. So too can commodities such as industrial metals and oil.
“Again, this could change depending on whether inflation continues or deflates once pandemic-related quantitative easing winds down.
“So, the key remains spreading exposure across a range of assets and watching closely at how the markets could change over the coming months.”
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