What’s a Reflation Trade, and Who Wins and Loses?

Inflation has been all but absent from much of the world for over a decade, but so-called reflation trades became all the rage earlier this year as economies started to recover from the pandemic and measures of inflation ticked higher. Loads of cash piled into strategies set to benefit from the trend. By mid-summer, however, investors started to worry that the trade had run its course.

It’s the prospect of a return to global growth after the economic hit from the Covid-19 pandemic. When several drugmakers late last year revealed strong efficacy results for their vaccines, investors piled into assets that win in an improving economic cycle. Ultra-loose central bank monetary policies and more stimulus spending under President Joe Biden gave more fuel to these bets.