Amundi Convictions: Income as a source of resilience

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Discover how income could act as a possible source of resilience*

The world is grappling with inflation that has reached a level we have not witnessed in many years. This phenomenon is especially visible in developed markets (DM) and is driven by multiple shocks (such as supply chain bottlenecks and geopolitical tension) as well as the tail end of the Covid-19 pandemic.

In this complex scenario, we believe that achieving real income will be a key element for investors seeking to mitigate the negative effects of inflation.

*Diversification does not guarantee a profit or protect against a loss.

How did we get here?

European households have constantly increased their exposure to cash, accumulating funds into bank deposits since 2016. This phenomenon has been particularly exacerbated by the Covid-19 pandemic, where objective constraints to spending have further supported this increasing trend. The amount of money amassed by households grew by €3,000 bn between 2016 and 2021, roughly 28% of their financial wealth.

However, inflation has been on the rise and has eroded a significant portion of the purchasing power of the money saved. By the end of 2022, the accumulated loss since 2016 is expected to reach roughly €1,400 bn.

Real income resilient to inflation

High inflation has eroded a significant portion of the purchasing power and the performances of equity and bond markets. We believe investors should seek additional income in an attempt to at least maintain a constant level of wealth and seek to counter negative effects of the loss of purchasing power.

1. Loss of purchasing power

European household deposits have risen but investors may have lost money when you account for inflation

2. Income Investing

In our view, investors have different choices when targeting income such as cash deposits, bonds or income funds. Deciding on which to invest in depends on inflation, uncertainty and income potential.

3. 2022 was one of the worst years on record for investors

Both government bonds and equities experienced double digit losses. On the other hand, yields have risen across the board offering now appealing entry points.

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Discover how income could act as a possible source of resilience

Inflation remains high and in turn is eroding savings thus reducing purchasing power. The high inflation we’ve been experiencing has caused investors to re-examine their portfolios in search for resilience.

Discover the role income can play in an inflationary environment

High inflation has eroded purchasing power. Although still high we believe it is decelerating and yields are at a 10 year high. Discover how we believe investors could seek to counter the effect of high yields.

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Watch: Inflation remains above Central Bank targets

Inflation although on a decelerating path remains high which in turn diminishes the value of people's savings and investments. Despite this, we believe that steep drops in bond and equity markets have set the stage for what could be one of the best income opportunity backdrops of the last decade.

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Important Information
Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 22 November 2022. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.

Date of first use: 2 February 2023

Doc ID: 2717044