The Times - UK (2022-01-01)

58 Saturday January 1 2022 | the times

Money

5

competitive advantage, is a good way

into the market.”

Big brands

Emma Wall, the head of investment

analysis at the wealth manager

Hargreaves Lansdown, says:

Interest rate 1 per cent

Inflation 2.5 per cent

“Consensus among both equity and

fixed income fund managers is that

inflation will remain elevated for at

least the first half of the year, which is

bad news for almost all asset classes as

it sets a higher bar for real returns. The

good news is that many companies are

forecasting dividend rises through the

year, which will help to combat rising

prices for shareholders.

“For investors looking for a short-

term hedge against rising prices,

Inflation should

be seen as

a boon to those

companies that

can prove

their mettle

H

ow high will inflation go?

How quickly will central

banks increase interest

rates to keep it in check?

These are the questions

that will keep investment experts up at

night this year.

A panel of professional investors told

The Times that they expect inflation to

peak at about 5 per cent by April, just

under the Bank of England’s forecast of

6 per cent. They expect it to fall to about

3 per cent by the end of the year.

The UK central bank’s interest rate,

which tends to go up with rising infla-

tion, is expected to increase from

0.25 per cent today to about 1 per cent

by the end of 2022. What happens to

inflation and interest rates will of

course depend on how the global fight

against Covid plays out.

Here, our panel of analysts and stock

pickers give us their views, and predict

where the smart money will be invested

in 2022.

US tech

Stephen Yiu, the manager of the

Blue Whale Growth fund, says:

Interest rate (by end 2022) 1 per cent

Inflation (by end 2022) 4 per cent

“With Covid and inflation concerns in

the backdrop, it is important to focus on

companies that can combine a high

Join Japan’s

robot

revolution

Take a

punt on

Worried about inflation? Microsoft

Here’s how to beat it...

Investment analysts and fund managers

tell Ali Hussain what they will be doing to

win the race against rising prices in 2022

cloud computing, 5G expansion and

burgeoning AI technology.”

UK banks

Victoria Scholar, the head of

investment at the wealth manager

Interactive Investor, says:

Interest rate 1 per cent

Inflation 3.5 per cent

“While interest rates remain very low

by historical standards, even after the

December hike by the Bank of England,

the hawkish shift sends an important

message, signalling the start of more

rate hikes to come.

“The central bank has initiated the

path towards monetary policy normali-

sation. Three further rate hikes are

expected by September, lifting the

benchmark policy rate to 1 per cent.

Clearly this depends on Omicron and

other variants, which could derail the

economic recovery and slow the pace of

tightening.

“With the Bank of England leading

the charge in terms of monetary policy

tightening, interest rate differentials

could provide support for the pound,

particularly against the euro. Any

hawkish rhetoric from central bankers

or a faster than anticipated shift in

interest rates in 2022 could lift the

banking sector, providing a tailwind for

stocks such as Lloyds and Barclays as

net interest margins improve.”

Japan

Tom Stevenson, the investment

director at the fund manager

Fidelity International, says:

Interest rate 1 per cent

Inflation 3 per cent

“It will be harder work for investors in

2022 than the two previous years. The

outlook for inflation is uncertain, the

outlook for monetary policy is unclear

and the emergence of Omicron threat-

ens the assumptions about both infla-

tion and interest rates. It will be another

year of positive returns for shares, al-

though the market’s trajectory will be

flatter than in the past 18 months. The

winners might once again be the defen-

sive growth shares that have led the

market higher throughout the recovery.

“Japan is an out-of-favour market

that could do relatively well. The Baillie

Gifford Japanese fund, with a particular

focus on robotics, where Japan has a

I “ 2 o o a e t y t f w s m t G f

gross margin with superior pricing

power — a double blessing that means

they are less affected by rising costs

while also being able to increase their

prices to outpace inflation.

“Microsoft, a Top 10 holding in our

fund, with its gross margin at about

70 per cent versus the UK stock market

at 30 per cent, has recently announced

major price increases of its key office

products by 15-20 per cent.

“We therefore believe inflation

should be seen not as a headwind to

investment performance, but potent-

ially as a boon to the performance of

those companies that can prove their

mettle during inflationary times.

“With the proliferation of digitisa-

tion, and as people continue working

from home, there are companies well

positioned to take advantage. We are

particularly excited about Nvidia — a

player in the ever-increasing need for

processing power and a beneficiary of

Stephen Yiu from Blue Whale

Mortgages at 7 times salary? No thanks

H

omeowners are unlikely to snap

up the new mega loans on the

market, mortgage brokers say.

Habito, the online lender, this week

became the first to offer a loan of seven

times a borrower’s salary since North-

ern Rock was nationalised in 2008.

Since then, loans at income multiples of

between four and four and a half times

salary have become the norm.

Someone earning £80,000 would be

able to borrow £560,000 from Habito at

3.59 per cent if they had a 25 per cent

deposit. If they were limited to borrow-

ing four and a half times their income

the most they could get would be

£360,000. The loan, which comes with

a £1,995 arrangement fee, is available to

homeowners willing to fix for 15 to 40

years. At present less than 1 per cent of

borrowers fix for 15 years or longer. You

also need a 12-month employment

history and must either make £25,000

in sectors such as the police, fire and

health services, be an accountant,

engineer, lawyer or teacher, or earn

£75,000 a year.

“We’re not expecting many people to

fix for that long, even though it must be

tempting,” said Aaron Strutt from the

mortgage broker Trinity Financial.

There are indications that affordabil-

ity rules might soon be relaxed. The Fi-

nancial Conduct Authority is consult-

ing on plans to scrap a rule requiring

loan applicants to prove that they can

pay their lender’s higher standard vari-

able rate of interest plus 3 per cent.

Other banks and building societies

offering loans at high salary multiples

include Clydesdale Bank, which

offers five and a half times income for

first-time buyers who are newly quali-

fied professionals. Nationwide offers

the same to first-time buyers with de-

posits as low as 10 per cent if they have

a good credit record.

House prices rose 10% in a year David Byers