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Return of the ‘taper tantrum’

22 February 2021

This year could see the return of the ‘taper tantrum’ as the recovery from the Covid-19 pandemic prompts expectations of higher rates, says Beaufort Investment.

While central banks have continued to make supportive noises around interest rates, investors could panic as the spectre of inflation returns, warns chief investment officer Shane Balkham.

Balkham says: “The supportive stance from policymakers will likely remain in place until the vaccines have paved a way to some return to normality. However, there will be a risk of another ‘taper tantrum’ similar to the one we witnessed in 2013, and this is our main focus for 2021.

“This is where the market’s expectations of interest rates being raised by central banks begins sooner than had otherwise been anticipated, which could lead to a sell-off in the equity markets. Whether it is as severe as the one in 2013 where we saw a fall of 10% in Sterling, is uncertain.”

According to Balkham, 2021 is likely to be characterised in two distinct parts – the first six months driven by the progress of vaccines around the global and the second dictated by economic growth, which will be a long and slow process, taking the UK well into 2022.

Against this backdrop, Beaufort Investment said diversification is key.

Balkham added: “Our focus has always been on diversification and how the underlying asset classes have changed and adapted over time. We remain vigilant to the threats that political surprises can produce, highlighted by the scenes in Washington and that Brexit will still have wrinkles to be ironed out.

“However, we are equally open to the opportunities that an inoculated world could deliver, and investors must have a long-term investment horizon and not be distracted by the inevitable short-term noise.”

Professional Paraplanner