Bernhard Langer, senior investment strategist at the American investment company Invesco, takes a rather relaxed view of the concerns on the financial markets in view of the recently very high inflation rates.

According to him, inflation has come to stay.

However, he does not expect hyperinflation and, in an interview with the FAZ, cites the moderate inflation expectations on the market, among other things.

Markus Frühauf

Editor in business.

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For the euro zone, inflation expectations based on the five-year inflation swap are currently 1.875 percent below the medium-term average target of 2 percent by the European Central Bank (ECB). In the United States, expectations are 2.51 percent. “A year ago we still had negative inflation rates in Europe, so the recent high price increases can be explained by enormous base effects.” Other market observers also point to the disappearance of the VAT effect, the increase of which this year caused additional price pressure.

It is also assumed that the significant rise in energy prices is likely to slow down again.

However, persistent supply chain disruptions will continue to put pressure on prices.

From Langer's point of view, wage agreements in Europe are still at a comparatively low level.

"The dynamic in Europe is lower than in the USA," says the Invesco strategist.

He expects prices in Europe to rise by between 2 and 3 percent in the coming year and by more than 3 percent in the USA.

"The central banks consciously want to achieve this inflation," adds Langer.

"No charge for shares"

According to him, the moderate inflation need not be a burden for stocks. “It gives companies more leeway, which can have a positive effect on their profits.” In addition, the central banks are not forced to slow growth by raising interest rates significantly. “So there will still be sufficient liquidity,” he is convinced. "The monetary policy tightening will come in the United States next year, while Europe is likely to follow with a 12 to 15 month delay," he predicts.

He is cautiously confident about the corona pandemic.

You will no longer be as unsettling as it has been the case so far.

A new virus variant such as Omikron recently could affect the markets for a short time, but at some point the expectation will prevail that there will soon be vaccination against it.

"We will learn to live with the coronavirus as it has long been normal with the flu," says Langer.

"Europe has never been as cheap as it is now"

Invesco's asset managers are positive about the outlook for Europe, where the European Central Bank (ECB) is expecting inflation to fall again and monetary policy to continue to expand.

"Valuations on the European stock market have never been as cheap as they are now compared to the United States," says Langer.

This applies to all relevant key figures such as the price / earnings ratio or dividend yields.

"It therefore makes sense to overweight Europe now, because a catch-up effect is likely," he adds.

In America, he believes, there are more and more characteristics of speculation, as evidenced by the boom in empty Spac jackets or the exaggerated valuations of some tech companies.

"That has not yet been observed in Europe."

Despite his fundamental confidence, Langer is aware that the economic and market environment remains prone to disruption and that there is no reason for cockiness. "Investors have to be prepared for price fluctuations," he says. In addition, there will no longer be the momentum of price recovery as after the corona crash in spring 2020. In mid-March 2020, the Dax had dropped to 8,440 points. Since then, the leading German index has almost doubled. This price development is unlikely in the medium term.

However, according to Langer, a volatile development on the stock market that is prone to fluctuations also offers opportunities.

Price setbacks should be used to buy, is his advice.

Such setbacks could trigger new virus dangers or geopolitical problems.

If the stock market then goes down by 10 percent in a short period of time, cheap or attractive entry levels can be offered.

With the liquidity of the ECB in the back, a price recovery is likely in this case.

Overall, the Invesco strategists regard 2022 as the “year of transition” in their outlook published this week.

Politics and economy would move towards a "more normal state".