Banks globally got inflation ‘so horribly wrong‘, advice CEO says

Central banks failing to forecast inflation correctly has resulted in the selection process for global equities to rapidly change in the last few years, according to a local advice industry CEO.

On an upcoming ifa roundtable, Lifespan Financial Planning CEO, Eugene Ardino, noted that while growth, quality and value are all important when considering global equities, the Australian equity market is currently very much value-tilted.

However, he said there has been a distinct change in the last year, which central banks around the world have played a part in.

“So you probably want to have a little bit more into growth. That's been good up until, I don't know, 18 months ago,” he said.

“We parted back a little bit. I think maybe you can be forgiven for not seeing the snap back in the last six or seven months. I think one of the main reasons that's happened is because central banks around the world got inflation so horribly wrong. One of the worst forecasts misses, I think that we will ever see. And as a result, I think that's led a lot of the rotation from growth to value this time around anyway.”

Mr Ardino's comments come after Reserve Bank of Australia (RBA) governor Philip Lowe confirmed that further increases in interest rates will be required over the months ahead.

Addressing the Anika Foundation and Australian Business Economists earlier this month, Dr Lowe said: “This increase in interest rates — from what was a historically low level — is to ensure that the current period of high inflation is only temporary and that a more sustainable balance between demand and supply is established.”

Since May, the RBA has raised the cash rate by a cumulative 2.25 percentage points, including a 0.50 per cent rise this month.

On the same roundtable, Mr Ardino argued that “preparation and education” are crucial when discussing market downturns with clients, such as the recent hikes to inflation.

“Warning them that downturns are part of the process. Some advisers historically have been afraid to have those conversations, and that could be a really big mistake,” Mr Ardino said.

“So, reassurance is important, but so is preparation and education.

“And you find the advisers that are better at that, get less clients that are stressed or that are ringing up complaining.”

The global equities roundtable which also boasts Macquarie's division director and investment specialist, Luis Sarmiento, and Carlo Queddeng, head of managed funds at Providence Wealth Advisory, will shortly be available on ifa.com.au.

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.