M&G Fund Manager Richard Woolnough Warns of Tensions in Weaker Stock Markets with Rising Interest Rates

M&G fund manager Richard Woolnough warns of tensions in the weaker areas of the stock markets as interest rates rise. “The money is flowing into the more solid corners of the financial markets,” says Woolnough in an interview with FONDS beruflich, which appeared in the new issue 2/2023. In order to combat rampant inflation, the central banks are pulling massive amounts of funds out of the system by raising interest rates. As the central banks abandoned their ultra-lax monetary policy, there have already been upheavals, for example at US banks.

“It was an experiment, printing all the money,” says the manager of billionaire M&G Optimal Income. “Now it will be an experiment to wipe out all the money.” In view of the circumstances in the course of the financial and euro crisis, Woolnough concedes that the decision to print money was probably the right one. “However, the high level of money in circulation had the effects that we are now struggling with,” says the bond manager. “I hope that we will return to a more stable economic and monetary policy.”

“Didn’t hit the brakes in time”
On the other hand, Woolnough accuses the management of the central banks of significantly underestimating the dangers of high inflation rates. “For the past few years, central banks have come out and said they can’t create inflation,” Woolnough said. “But how do you create inflation? By printing an incredible amount of money.” When you increase the supply of a good, the price falls. If supply goes down, it goes up. “It’s a very simple economic connection,” Woolnough emphasizes.

However, central banks around the world failed to see any connection between the money supply and inflation. “A fallacy, as it now shows,” criticizes the M&G star and adds: “Many investors were also taken in by this.” This has consequences. “As is now becoming clear, the central banks did not step on the brakes in time,” says Woolnough. “They are now stepping on their irons particularly hard for this.”

“Finally returns again”
In principle, the bond manager is convinced that the currency watchdogs will get inflation under control. “I am convinced that monetary policy works in principle,” said the bond professional. It just needs time to take effect. However, should tensions arise, the central banks would take countermeasures and “provide funds at critical points, as they have already done,” said Woolnough, referring to the banking turbulence in the USA and Switzerland.

After years of zero and negative interest rates, Woolnough now sees better times for his profession. “Bonds have not been in a bull market in my opinion,” explains the M&G veteran. “I don’t see paying to lend someone money as a bull market.” That was a very difficult environment for bond investors. “But that time is over now. We bond investors are finally getting returns again.” (ert)

You can find the entire interview with Richard Woolnough in the new issue 02/2023 of FONDS profi from page 90 and, after registration, also here in the e-magazine.