Disinflation is investors' new best friend

Brendon Lau

Vantage Point Partners

Disinflation is investors' new best friend! Ironic, given that this word is making many nervous. But falling inflation could actually be a great thing for equity investors. To be clear, I'm talking about disinflation and not outright deflation. Disinflation is the more probable outcome given quantitative easing in Europe and Japan, record low global interest rates and monetary easing in China. In contrast, deflation is not typically good for just about any asset class - unless it's mild deflation, in which case, it may be almost as good. Research done by US research company The Leuthold Group in 2010 showed that when inflation was around zero to -2.4%, the S&P500 Index gained 18.2% on average. How about Australia? I've compiled a chart showing the performance of the ASX All Ordinaries contrasted against Australian inflation. Periods of declining inflation has coincided with robust share market gains. Another interesting observation is that this period of disinflation comes at a time when experts are arguing about whether equities are overvalued, particularly in the US. If this benign pricing environment persists, markets may actually have further to climb.

Brendon Lau
Associate Director - Investor Relations
Vantage Point Partners

I am with Australia's leading small caps investor relations and media relations firm, Media & Capital Partners. I worked as a small caps analyst and journalist prior to MC Partners. Views are my own and should not be regarded as advice or...


No areas of expertise

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.