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The Impact of Inflation on Capital Rotation in Inflationary Inflection Points: An Investigation on How Inflation Affects Capital Rotation Between Major Market Sectors as Economies Shift from Disinflation to Reflation
Jönköping University, Jönköping International Business School, JIBS, Economics.
Jönköping University, Jönköping International Business School, JIBS, Economics, Finance and Statistics.
2021 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

There has been a multi-decade disinflationary period that, with the conjunction of recent pandemic-related events, led to extremes in various economic metrics: record lowest interest rates and inflation, increasingly loose monetary and fiscal policies leading to severe debt levels and money supply - all resulting in a multi-front pressure on inflation to start increasing, and after 30 years, for economic environments to reach an inflection point from disinflation to reflation. How would various market sectors perform if suddenly inflation starts to surge? Previous research of similar events, such as in the 1970s, as well as theory, points towards certain market sectors and asset classes, such as commodities, to outperform their peers. Research on this topic is fairly scarce, thus, to better prepare for such an inflationary event and gain insight on which market sectors are best to invest in or avoid, this paper conducts an investigation to explore that scenario. By looking at 11 major market sectors over 10 countries' historic inflationary points that shifted from disinflation to reflation, analysis determined that, while certain sectors are indeed more sensitive to changes in inflation than others, many more are sensitive to changes in interest rates that normally accompany inflation. Sectors such as Energy, Consumer Discretionary and Financials would perform well during this period, while sectors such as Information Technology would historically underperform. Contrary to the theory, not enough relation was discovered by the analysis towards the commodity sector as a whole to overperform, however, that does not mean that none exist. Further research is still required on this topic to increase knowledge and awareness so that the negative impact of inflationary events like the ones of the 1930s and 1970s can be avoided and even taken advantage of.

Place, publisher, year, edition, pages
2021. , p. 52
Keywords [en]
Inflation, Inflation Cycles, Reflation, Rising Inflation, Decreasing Inflation, Disinflation, Capital Rotation, Capital Cycles, Inflection points, Interest Rates
National Category
Economics
Identifiers
URN: urn:nbn:se:hj:diva-52814ISRN: JU-IHH-NAA-1-20210224OAI: oai:DiVA.org:hj-52814DiVA, id: diva2:1561779
Subject / course
JIBS, Economics
Presentation
2021-06-02, Online Zoom, Virtual, Virtual, 13:00 (English)
Supervisors
Examiners
Available from: 2021-06-21 Created: 2021-06-07 Last updated: 2025-10-13Bibliographically approved

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