Investors are looking for a safe haven amid inflation and rising interest rates

With inflation “poisoning” the economies, central banks are launching aggressive interest rate hikes.

Following the recent 0.75% increase in US interest rates by the Fed, the largest since 1994, the ECB will raise interest rates by 0.25% in July and, according to Lagarde, interest rate hikes will become more aggressive since September.

In this environment of high inflation and aggressive interest rate increases, investors are looking for investments that will offer them safe haven.

A study by Wells Fargo that looked at inflation periods since 2000, the top performance (41%) is presented by oil, followed by emerging stocks (18%), gold (16%) and cyclical stocks (16%).

Analysts recommend commodities, energy and equity REITS (investment funds that invest in real estate) in a high inflation environment. In particular, sectors such as finance, heavy industry and raw materials may be favored.

Real estate

Analysts consider real estate a very attractive investment, noting that on average real estate prices over a period of 100 years go hand in hand with inflation, sometimes exceeding it by 2% to 3% in developed economies.

Real estate and infrastructure also offer an alternative. During the stagnant inflation of the 1970s, for example, the US real estate index FTSE Nareit outperformed the broader S&P 500 index, which includes 500 large US companies.

The goods

Commodities have historically performed well during periods of high inflation. Commodity prices are positively correlated with inflation and the energy sector has historically outperformed when the US consumer index is above 2% and is on the rise. The current economic environment favors, according to analysts, rising commodity prices.

The gold

Gold is considered a traditional safe haven in times of turmoil and is considered by many to be a key protection against inflation. But a Morningstar report shows that gold returned negatively to investors during periods of high inflation in the United States, such as 1980-84 (-10%) and 1988-91 (-7.6%), while commodities and properties had much better returns.

The shares

Stocks are being hit hard by rising interest rates, which is still being “verified” today as global stock markets hit a strong sell-off as central banks move particularly aggressively to curb rising inflation.

Analysts, for better “defense”, suggest shares of companies in cyclical sectors, such as heavy industry and raw materials, as they may show an increase in revenue.

Investing in stocks of companies involved in infrastructure projects can be a good way to protect against inflation because their revenue stream is usually linked to consumer price indices.

For example, utilities, transport, and telecommunications often use inflation-related pricing.

Short-term bonds

Short-term bonds offer better protection against inflation due to their lower sensitivity to rising long-term bond yields, which we often see in times of inflation.

Source: AMPE