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Leading fund manager dismisses inflation and EU election fears

Paloma Kubiak
Written By:
Paloma Kubiak

Inflation’s steadily crept up since the tail end of 2016 and investors have been concerned about the impact of the EU elections on markets. But a top UK fund manager says he’s not remotely worried about either.

The UK measure of inflation remained steady at 2.3% in March with the figure exceeding the Bank of England’s 2% target for the second month in a row. It is the highest rate seen since September 2013 off the back of rising food costs, a weaker currency and higher commodity prices.

While investors may have been unnerved by the rising inflation measure and the effects of this on asset prices, Richard Buxton, head of UK equities at Old Mutual Global Investors (OMGI) said one of the last things he’s worried about is inflation.

The veteran investor suggests inflation could rise to near 4% before falling back again to around 2% over the next 12 months. However he believes this is likely to be a “temporary blip” and shouldn’t top investors’ list of concerns.

He said: “After seeing over a thousand professional investors on a recent roadshow, inflation is not top of their worry list.

“Wage inflation is so muted, everyone understands the rise in inflation is due to the fall in sterling and is likely to be a temporary one-off, before falling back again, as there just isn’t the underlying cost-push or demand-pull to generate sustained inflation.”

As a result Buxton said rising inflation is not something investors should be changing their investment strategy for.

The EU elections

Another area unsettling investors relates to the elections taking place in the EU nations.

The first round of the French presidential election has taken place, which appeared to show Emmanuel Macron leading the race as he secured a greater vote ahead of far right candidate Marine Le Pen and former prime minister, republican François Fillon. The French parliamentary vote will take place in June while in September the Germans go to the polls.

Buxton, whose career spans 30 years, said he is not remotely worried about any of the European elections taking place this year.

“I think the French electoral system is designed to ensure extremists can’t win, and the result of the first round of the French election pretty much confirmed that. So the Dutch didn’t vote for an extremist, it looks like the French won’t and the polling for the extremists in Germany is falling.”

He said that if Le Pen did win however, the French market would fall significantly and the euro would sell off, leading to a fall in global equities. The only place where an anti-euro party may score heavily in the polls is in Italy.

“Even if this happened, I suspect other European countries would rally round to provide assistance to its banking sector, for example, in order to assuage the country and ensure it did not actually legislate to leave Europe or the euro,” Buxton said.

As such, he said that investors should “continue as normal”, adding investors “shouldn’t sit in cash terrified of some major political disruption in Europe”.