Originally trained as an economist and now the Chief Global Strategist at Principal Asset Management, Seema Shah spends her time looking at the intersection of fundamentals, technicals and valuation. Our conversation first considers the low growth, low inflation era that persisted post GFC but pre-Pandemic and here Seema distinguishes between strong economic expansion and favorable market conditions.  Of course, the opposite has been the case in 2022, as the Fed has been forced to tighten at an exceptional pace and asset prices have suffered amidst strong growth.

Noting the importance of watching Central Banks, Seema asserts that you have to recognize when they are in the process of making a mistake, something that became increasingly apparent as 2021 progressed. We turn to inflation. Seema stresses the importance of labor market tightness, how it leads to wage growth and how that imposes challenges on the Fed’s mission to reduce inflation.

With a view that price pressures will persist and that policy rates will remain higher for longer, Seema and her team are steering clients toward defensive positioning with respect to inflation, focusing on commodities and exposure to infrastructure plays like toll roads and airports. We close our conversation by considering China, where Seema asserts that the transmission of policy stimulus has been impaired by Covid Zero. While the path to reopening is surely uncertain, global growth could see a strong positive impulse at some point in 2023 if lockdown restrictions are eased.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Seema Shah.