We are going to see the markets where to invest when there is inflation, because it is a complex moment but there are always good opportunities.
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The reality of inflation
Inflation can be defined in a simple way as the continued rise in the prices of the goods and services we consume, and is directly related to economic activity. And yes, high inflation is a scourge for any economy, since it means a general increase in the cost of living. Tell Germany why they are terrified of inflation.
The continuous rise in the price of raw materials and especially oil are the main reasons why inflation levels may be high. This is how it has been throughout history and this is how it is now.
One of the main measures adopted to contain the incessant gallop of inflation is to raise interest rates. In this regard, it is important to know how a rise in interest rates affects the markets, as well as how a rise in interest rates affects financial products.
It is true that there is a risk of stagflation, but much less the one experienced in the 1970s thanks to current employment levels, but it is also true that as long as wages continue to rise at the current rate, inflation will not be contained. And one of the important ideas to keep in mind is that the capacity of the economy to withstand higher inflation and higher wage growth is the increase in productivity.
Markets where to invest when there is inflation
What does this mean for the markets? For starters, volatility. We have a dislocation between the economic reality and the economic framework that is valued in assets.
By boat soon, we can say that the most favored assets would be value stocks, financial stocks, materials-related stocks, energy stocks, cryptocurrencies and gold, while technology stocks and consumer stocks lose out. .
We are going to see a series of markets to invest when inflation is high:
– Gold: when inflation arises, the interest in gold increases substantially as a hedge against inflation. If we go back in history, we can see that in the last 50 years, since 1971, gold has risen on average +15% per year when inflation was greater than 3%, while it has risen on average +6 Annual % when inflation was less than 3%. And in the 1970s and 1980s there has also been a good correlation between the performance of gold and inflation, although since 1990 this correlation has diminished.
You can invest in gold through futures and CFDs, but also through mutual funds and ETFs, such as Invesco Gold & Special Minerals Fund, Jupiter Gold & Silver Fund, Franklin Gold & Precious Metals Fund, DJE Gold & Ressourcen XP, Bakersteel Global Precious Metals, Schroder ISF Global Gold, BGF World Gold A2.
– TIPS inflation-linked bonds: if we buy an inflation-linked bond, we ensure a return in real terms (discounting inflation) during a specific period of time, provided that the bond is held until maturity. It is a good option to protect the capital against an increase in inflation, but we will not have that protection against inflation if we sell it before its maturity.
These TIPS bonds have the same security as traditional sovereign bonds and, unlike the latter, are designed to protect the investor against inflation in a given period of time, regardless of the evolution of inflation.
We can find TIPS bonds with different maturity terms (5, 10 and 30 years). The coupon is fixed and semi-annual and is fixed at the time of issue.
– Inflation-linked bond funds: These investment funds protect well against an increase in inflation. We can, for example, list the Sabadell Euro Inflation Bonds, the Caixabank Smart Fixed Income Inflation, the M&G Lux European Inflation Linked Corporate Bond Fund and the Ostrum Euro Inflation.
– There are also stocks that tend to do well in the face of inflation: oil companies, commodity companies, banks and insurance companies are a good example of this.