Two Biggest Risks Now Are China and Inflation, Market Veteran Says

Larry Hatheway, who’s spent decades poring over the mechanics of financial markets and investing, says his two biggest concerns right now are China and inflation.

As the long-running bull markets in global equities and fixed-income rage on, the 59-year old head of investment solutions at GAM said they are the two largest potential risks over the next three to six months. A slowdown in Chinese growth spurred by the authorities’ restraint of credit creation would be a surprise to the market that it is not anticipating, he said.

“The second would be that despite little evidence of it happening, we in fact do get a surge in inflation” that could come from the U.S., Europe or Japan, he said in a Bloomberg TV interview in New York. “All areas where labor product markets are now at the points where previously we would have seen those developments. It is simply unanticipated in the markets.”

As strategists and professional prognosticators dust off their crystal balls with year-ahead forecasts, one pivotal question is whether 2018 may mark the turning point for markets as central banks wind back some of the extraordinarily high levels of stimulus that have helped fuel asset-price growth in recent years.

Hatheway, who joined UBS AG in 1992 and worked there until 2015 in roles including global head of asset allocation, arrived at GAM in 2015. He now sits on the firm’s management board, where he helps make decisions that affect where GAM’s $151 billion in client assets is invested. Investors have ultimately been able to overlook a range of concerns this year because earnings growth and economic activity are holding up, he said.

“It really comes down to the resilience of growth in a non-inflationary way,” Hatheway said. “In that environment we are seeing extraordinarily high levels of profitability.”
Source: Bloomberg