Analysts wary of inflation

Analysts wary of inflation

Banking, gold, crypto tipped as hedges

Analysts recommend investing in assets that can serve as hedges against inflation, including banking, insurance, real estate and recovery-related stocks, as well as gold and bitcoin as long-term bond yields remain high, signalling high inflation ahead.

UOB Kay Hian Securities predicts long-term bond yields will remain stable at a high level over the next two months, benefitting inflation-hedging stocks.

US President Joe Biden recently disclosed his US$6 trillion budget, which contains details on economic stimulus measures, infrastructure investments, upcoming measures to help the US housing sector and plans to offset declining unemployment benefits.

Personal consumption expenditures are also expected to be tallied.

However, with bond yields moving up and expected to stay at a high level, the US inflation rate is also expected to rise.

If the inflation rate remains high, UOB recommends investors adjust their weights in stocks that are expected to benefit from an inflation hike and can serve as hedges, such as stocks in banking, insurance, real estate, and recovery-related businesses.

Moreover, investors should follow the upcoming Fed meeting to determine signs about US monetary policy for the second half, said UOB.

Warut Rungkam, head of research at YLG Bullion and Futures Co, said gold is an attractive investment as inflation rises, which will likely lead to a government liquidity injection, causing the US dollar to weaken along with an economic slowdown such as a higher unemployment rate.

The global price of gold began to rise in March, in parallel with inflation that has been rising gradually. In April and May, the price of gold has risen by 13% from March.

The resistance price for gold in the first half of the year is expected at $1,959 an ounce, while in the second half it is $2,100 an ounce, said Mr Warut.

In the short term, the price of gold should continue to rise, he said.

Investors should follow the Fed's meetings to see if quantitative easing is likely to taper in the second half of the year as the US economy recovers, said Mr Warut.

The US government has injected around $120 billion of monthly payments into the economy. However, the interest rate is expected to remain stable this year.

In addition to gold, investments in oil and cryptocurrencies such as bitcoin are options for investors to manage inflation.

The price of oil has rallied significantly this year because of limited supply during a rise in demand.

Meanwhile, bitcoin has experienced high volatility from influencers and investors who sold holdings recently.

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