Alternatives to equities in an inflation environment

Have you noticed this summer that the hotel you used to stay in in other years has been more expensive? Has the purchase receipt increased even though you are purchasing the same? You are directly witnessing the latest wave of inflation. And it is that, as economies recover from the collapse of the pandemic, price increases are the common trend, and the fear of higher inflation turns into a short-term certainty that we do not know exactly how long it will last, say what they say.

“The different economic organizations do not stop revising their CPI forecasts upwards, since the bottlenecks in the production chains and the rise in raw materials are increasing. In this way, what a few months ago was defined as a transitory phenomenon runs the risk of becoming persistent ”, says the Ei’s director of analysis, Luis Francisco Ruiz.

And, in the face of an even more intense and / or lasting rebound in inflation than expected, what will be the reaction of the markets? More importantly, how should we react financially? For the everyday consumer, the quickest solution could be to limit any “extra” spending that has a significant impact on your portfolio. But for those who invest the concern is greater.

In these cases, for many experts, the most logical thing is to reduce positions in equities, since it is not the safest asset class if disruptive inflation is looming, but it is also true that some areas of the market could do it more or less well this scenario. “Cyclical sectors and value should do better than growth and quality in the first half of 2022,” he says José Lizán, manager of Retro Magnum Sicav at Quadriga Asset Managers. Two specific sectors that will not suffer so much with inflation are technology -mainly the software part- and luxury, since “they can pass on price increases to end customers, on the one hand, and, furthermore, they are not intensive in capital, on the other, ”he says Julián Pascual, president of Buy and Hold, which adds that, on the contrary, “sectors such as construction or industrial are dangerous with high inflation.” Another area that could survive well is real estate; in this sense, Araceli de Frutos, director and founding partner of Araceli de Frutos EAFI, explains that, “although for next year I continue to see equities as the main asset class in the construction of portfolios, it should be complemented with assets such as real estate, not only with direct investment, but also through REITs ”.

Araceli de Frutos is also betting, in a context of inflation that is accompanied by economic growth, on investing in venture capital as another option to consider. “Venture capital funds; There is even the option of funds that invest in different venture capital businesses (a fund of venture capital funds), with which there is also diversity in different economic sectors ”, says Frutos, which also makes a direct nod to“ assets Inflation-Linked Fixed Income ”and“ Gold ETFS ”.

And it is that, without a doubt, something in which the vast majority of analysts agree is that, beyond equities, it is worth owning gold, oil and, possibly, also a bitcoin if inflation bites. “In an environment of inflation, raw materials, commodities and basic resources should have a better performance and that gives us guarantees for at least two quarters that these bottlenecks and supply problems that exist”, explains José Lizán, who does It also refers to “the great dependence that emerging markets have on raw materials.” The manager also emphasizes the potential amount of gold and precious metals: “it has been practically eight or nine months of falls or contraction in prices, and after many months of weakness we are beginning to see the first signs of capital inflows. , not only in gold but also in gold miners. Therefore, if inflation ultimately goes beyond what was expected, gold should start to perform a little better and will probably try to attack the 2,000 dollars per ounce throughout 2022 and reverse that downward movement that it has had throughout. throughout the last year ”.

A bet, that of raw materials, which shares David Ardura Moyano, Chief Investment Officer at Finaccess Value, but with nuances. “You have to bet on raw materials, but especially industrial raw materials, which are the ones with potential. That is to say, for copper or oil, which we believe are the ones that are going to do well ”, he assures.

Oil is, without a doubt, the asset that has shone above all in the last month. Black gold has seen an unprecedented rally this past October that has brought Brent and West Texas to highs of three and seven years, respectively. But the upward trend between now and the end of the year could continue … Will we see a barrel of Brent at $ 100? “Quite possibly,” Vladimir Putin himself claimed during Russia’s Energy Week. He is not the only one who sees it near those levels. Goldman Sachs believes that the price of black gold will remain very high for a long time and expects it to reach $ 90 by the end of the year. With this outlook, the strategy of many analysts is clear: bullish in the medium and long term. “Despite the fact that the US may add more oil from its reserves or even that Russia may offer more natural gas, if OPEC does not expand oil production it is difficult for its price to fall considering the world demand there is. At a technical level it has had a slight correction, but the trend continues to be clearly positive, so there is no other option than to think about buying corrections ”, details the IG analyst, Sergio Ávila.

Finally, another gold, in this case what many call “digital gold”, and which are cryptocurrencies, in general, and Bitcoin in particular, can also act as a safe haven and protect against inflation due to limited supply. Others, however, do not believe that it is a good option in uncertain times because it probably adds more volatility and its value is more of a speculative asset than a safe haven. Those who are in favor like the trading analyst at Ei Monica Triana they assure that “in the cryptocurrency market, Bitcoin and Ethereum are assets to watch closely because they can offer very interesting opportunities.” For others, like Araceli de Frutos, as long as Bitcoin is not regulated, “it is a very risky asset.”

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