Edward Bonham Carter, the chief executive officer of Jupiter, has warned bonds have the potential for wealth destruction in both nominal and real terms this year.
In an interview with the Telegraph, Bonham Carter says “the more that the authorities continue to reach for various versions of quantitative easing, the probability of inflation rate surprise increases”.
As a result, the chief executive is retaining Jupiter’s preference for shares over bonds and other asset classes to protect against rising inflation risks.
“If you invest in shares of companies that have price-earnings ratios of 12-to-14 times and dividend yields of 3-4%, with the capacity to increase those yields over time, that gives investors a good chance of getting a real return,” he says.
Meanwhile, Bonham Carter says he is resigned to the fact that unemployment levels in America and Britain are set to be “structurally quite high” for some time. (article continues below)
Owing to the strain the euro is under, Bonham Carter also predicts the dollar may be stronger than expected in 2011, but he does not believe this year will see the destruction of the euro.
In addition, while Jupiter remains in the disinflationary camp for the short-term, he adds the risk of stagflation have risen.
“Broadly the prices of the things that the world is short of and that this country needs to import, like energy, commodities and certain foodstuffs, are going up, whereas wages and real personal disposable income are going to be under pressure,” he says.
“That’s quite a nasty squeeze, so the economic pliers are being applied in the short-term. Offsetting that, corporate tax rates are coming down and I think the outlook for capital investment is reasonably robust.”