INFLATION AND IMPACT ON INVESTMENT DECISIONS

At a moment of significant rise of inflation and uncertainty in relation to the Covid-19 pandemic and geopolitical turmoil in Ukraine, the key question is how increased inflation will affect investors’ decisions. Inflation is described as a general, not just individual, increase in the prices of products and services. The »basket« of items, which is the basis for the calculation of the consumer growth index, includes 12 classes or types of goods and services. Changes in the prices of some items included in the basket are more important than others, as households have different consumer habits and, as a result, the items for which households spend more have a greater weight when calculating the average price increase than items for which they spend less. However, individual households behave differently, as they do not buy all the same things, and thus do not correspond to the general household consumption on the basis of which inflation is calculated. This is why, in addition to official inflation, so-called personal inflation is even more important for individuals, which may be much higher (or lower) than official inflation.

According to data from the Statistical Office of the Republic of Slovenia (hereinafter SURS), in March retail sales prices at the monthly level decreased by 1.1 of a percentage point, which was most affected by a decrease in electricity prices (a decrease of 38.9% due to the exemption from certain contributions), which contributed to deflation -1.6 of a percentage point, further lower prices of package holidays (by 16.1%), which contributed -0.5 percentage points and lower prices of mobile telephony (by 3%). More expensive petroleum products (diesel by 8.6%, gasoline by 8.1% and liquid fuels by 7.9%) by 0.4 percentage points were eased by deflation. At the annual level inflation was 5.4% (which is 1.5 percentage points less than the month before), which was most affected by higher prices of petroleum products (petrol went up by 30.3%, diesel by 29.5%), which contributed to inflation by 1.3 percentage points and food prices (by 6.9%), which contributed 1 percentage point to higher inflation. The European Central Bank (hereinafter: ECB) forecasts inflation of 5.1% and economic growth of 3.7% for the euro area this year (under the worst-case scenario it anticipates inflation of 7.1% and economic growth of 2.3%). At the same time, it will reduce the volume of asset purchases (APP) this year or eliminate them in the third quarter based on an assessment of the economic outlook. The ECB’s monetary policy orientation and strategic commitment is to stabilise inflation over the medium term to 2%, which will affect possible changes in key interest rates and the implementation of net purchases under APP.

In line with the forecast of high inflation, it is necessary to mention the additional risk in the form of stagnation, which represents a period of slowing economic growth and at the same time high inflation. At the moment, we are in a period of both high economic growth recovering from the Covid-19 pandemic and inflation, but economic growth is cooling, commodity and energy prices are reaching record levels and the economy will struggle to cope with higher input costs. In particular, in the importing countries, the increase in prices of energy sources has a significant impact on the price of products and services, resulting in a rise in market prices, while the same economy will slow down due to lower corporate profitability. The current low interest rates and high inflation thus have a strong impact on investor decisions.

In the case of investments in bonds, there is a risk that as inflation rises, their return will be lower or even negative. As the price and yield on bonds move in the opposite direction, rising yields mean falling prices, which means a lower principal value for fixed-income investments. As interest rates rise, the investment becomes less attractive, as investors can expect newly issued bonds yield a higher returns than those issued in previous years. The required yield or market rate of the most developed holdings’ reference government bonds reached its highest levels since the start of the COVID-19 pandemic.

Expectations of higher interest rates also affect the shares of the most promising companies, where strong profits are expected far into the future. Higher interest rates make it more expensive to finance companies, which in turn slows the growth of their business and affects lower profits, which ultimately means that the projected level of future cash flow is lower. Roughly, we can divide companies into developing companies that are relatively young and less profitable and, as a result, rarely pay dividends and to mature companies that pay high dividends in an average year. Developing companies need a more optimistic growth in cash flows estimates to maintain high stock values. In the event of high inflation, the question is whether companies will still be able to make the same profits as costs rise due to higher prices for raw materials and energy products, services, labour costs and financial expenditure. By increasing costs, margin is decreasing compared to the final price of the product, which threatens profits. As a result of this situation, the value of shares and bonds fell in early 2022, which was expected after a very profitable year in 2021.

Sometimes, emotions still play an important role in investor choice, which usually leads to the wrong decisions. In the current situation, investors should consult financial experts and trust them to manage their assets. In addition to the aforementioned investment classes, there are alternative forms of investment on the market which are subject to strict supervision by state regulatory authorities. Alternative forms of investment include private equity and debt funds, mezzanine funds, real estate funds (e.g. REIT), infrastructure funds, raw materials funds, debt redemption and other investments.

Superos Fund Management d.o.o. currently manages three alternative funds – a fund that places investors’ assets in consumer loan portfolios (Superos Stability Fund), a fund that represents a hybrid between the so-called Equity and Debt funds and gains income primarily through investment in portfolio companies where value is added by direct involvement in management (Superos Restructuring Fund) and the latest fund that places assets in relatively safe passive real estate projects with moderate high yield (Superos Passive Real Estate Fund) and where returns for investors are generated by increasing the value of the property over time and with a regular dividend yield (rent). The aim of all funds is to strike a balance between the security of invested funds and relatively high returns for investors, which is crucial in the current turbulent times.

Matevž Raztočnik

Matevž Raztočnik

CEO pri Superos, upravljanje alternativnih investicijskih skladov, d.o.o.
Director SFM

Andrej Laznik

With flexible financial solutions according to the highest business and moral standards, as well as an agile and dynamic customer-centric approach, we want to raise the bar when setting new standards. We believe and constantly prove that our approach is superb and we are best-equipped for the challenges of the future.

Founder

Klemen Mlakar

In his varied career Klemen has led and successfully managed assets of big investors. He is an expert in setting strategies, designing risk processes, and leading companies to financial stability. Klemen has seen numerous complex restructurings to successful ends, and led some of the most important merger projects in the region.

Founder

Boštjan Klinec

Boštjan is an expert with more than 20 years of international experience in insurance, banking, asset management, and leading investment funds. He has successfully led multiple projects focused on opening new markets, leading new companies abroad, and, once there, expanding them into local success stories.

Director Superos Fund Management

Andrej Laznik

In his diverse and extensive career, Andrej has more than 30 years of experience in leading large companies, establishing optimal organisationsand processes after company mergers, directing optimisation processes and streamlining expenses, all with the goal of cementing financial and business success.

Head of Back Office

Tanja Močnik

Tanja has over 20 years of experience at ALTA Invest and Poteza d.o.o.. Her expertise ranges from managing all the company‘s internal processes to leading its sales network. She has successfully run and integrated an enviable number of developmental projects.

Sales Director

Mateja Zavadlal

Throughout her more than 20-year career, Mateja has acquired extensive experience in both the public and private sectors in Slovenia and abroad. She built her career in management by leading mergers, directing financial and organisational restructurings, and leading companies in a variety of fields. Mateja is focused on establishing a company’s culture, streamlining business processes and building strong, successful teams.

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