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Markets set to walk fine line between 'stagflation' and 'reflation': Goldman strategist

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Equity investors should brace themselves to walk the tightrope between "stagflation" and "reflation," according to Peter Oppenheimer, the chief global equities strategist at Goldman Sachs.

"At these current very, very low levels of interest rates, inflation expectations and growth, there is a very fine line between tipping into a stagflationary type of environment as there is the opportunity for being in a reflationary environment," he told CNBC on Wednesday.

"Stagflation" is a term used to describe relatively low levels of economic growth combined with high inflation levels which, Oppenheimer argued, could result in a headache for investors. Reflation relates to stimulating an economy that has just suffered a dip in the business cycle, and Oppenheimer believes that the global economy looks poised to enter one of these two scenarios.

Echoing his previous comments from earlier in the year, he said that equity markets had been stuck in a relatively flat state with a wide trading range, he described current profit opportunities as "pretty neutral."

Expect ‘fat and flat’ equity returns this year: GS' Oppenheimer

"Swings in sentiment from fears of deflation, like we were seeing in January, to occasional hopes of reflation which I think is driving the optimism we have seen since July … But overall profit growth is pretty low, valuations are high – we think the index () moves broadly sideways," Oppenheimer added.

Meanwhile, a Deutsche Bank report published Wednesday showed skepticism over the prospect of reflation given a number of factors, perhaps most notably, that analysts at the bank believe global growth is set to weaken further still.

The analysts stated they remain cautious concerning the prospects of European equities given downside risks to growth globally, highlighting macroeconomic uncertainty in the pipeline. These uncertainties include the upcoming Italian referendum, the U.S. election result and a hangover from the U.K. Brexit referendum which they believe all combine to dampen the year-end target for the Euro Stoxx 600, which now stands at 325 points.

Looking ahead to next year, Oppenheimer argued that big swing factors,particularly from commodities, which are likely to bounce back from a depressed base, will have a limited impact on profit growth. He projected single-digit profits for the next year in Europe as well as expecting a similar outcome in other major markets too.