US Inflation At 40-Year High. How To Invest?
Banish Fear (of) Markets - Issue 14/2022 - 18 April 2022
It was news that markets had somewhat factored in, but it was still painful when it happened. US annual inflation hits its highest rate since 1981, clocking in at 8.5%, as released on Tuesday last week.
Ouch. I’m still old enough to remember 1981, when we were recovering from the stagflation from the late seventies. I was a teenager then shopping around for the best fixed deposit interest rates for my savings, then parked at Kwong Yik Bank (yes, I was a bit of a? financial geek).
The stagflation of the late seventies was so severe that it prompted the Malaysian government then to release TV ads against inflation on RTM, warning the public not to hoard goods. I remember as a kid, wondering why there was such a fuss about “inflasi”.
Whilst? we have not yet crossed the rubicon into the territory of stagflation (slow economic growth, high unemployment and high inflation), inflation is definitely here, and it’s going to be here for a while.
Markets took a hit on the news. S&P 500 closed 2.4% lower for the week, Nasdaq closed 3.9% lower, and my own portfolio closed 3.3% lower.
Are there any safe havens during an inflationary period? Given that I started investing since 2000 in what was a very low inflation period, I’m learning as much as the next guy about how to invest during inflation.
Wells Fargo was kind enough to do a statistical analysis of this. Its conclusion?
1. Avoid bonds (interest rate rises that accompany inflation will cause a decline in bond prices).
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2. Oil and energy are inflation’s fair weather friends
3. Emerging markets perform well during inflationary periods (I find this the most surprising statistical correlation;? I cannot profess to be able to explain the causality)
4. Gold and cyclical stocks are next on the pecking order.
Here’s Wells Fargo's summary of the performance of various asset classes during inflationary periods since year 2000.
But if we do enter the realm of the dreaded stagflation, all bets are off.
Disclaimer
This column is to help people who fear investing to experience the investment rationale of a long term investor in global stock markets. It is for informational purposes only and not intended as advice or recommendation to buy any stocks. Please consult a licensed professional adviser before making any investment decisions.
Malek Ali, Founder BFM 89.9 – The Business Station, CFP Professional
? Fintech Entrepreneur | Radio Station Owner | Financial Wellness Advocate | Tech Investor
2 年I do invest in entrepreneurs I know personally, but I'm less keen on the corporate types on Bursa. Some like to cook the books eg Serba Dinamik
Head Of IoT and Telematics
2 年Do what they do...invest locally...who else to help your kinsmen...
Software Engineer @ StashAway - React | Node | Next
2 年Thanks for sharing this informative insight, Malek. If I may, I believe one of the reasons on why EM tend to benefit on inflationary periods is that, most of them are commodity-exporters and high-yielders. On top of that, with the Russia-Ukraine conflict, commodities and energy supply has drastically declined whilst the demand hasn't, making oil-, mineral-, grains-producing countries benefit from the rising prices. Of course, this might be one of the reasons, there are certainly many variables to consider as well.