Inflation is raging on both sides of the Atlantic. The rise in consumer prices should come out between 5 and 6% at the end of 2022 in Europe, and could even reach nearly 10% this year in the United States, warns Karl Toussaint du Wast, co-founder of Netinvestment, marketplace French investment solutions company. While high inflation is daunting for an individual who is over-invested in low-paying passbooks or in certain parts of the stock market listing, what investments could an investor currently turn to?
Precious metals, considered as safe havens (especially gold, the other precious metals being often used by industry), constitute a classic defense against a scenario of sustained high inflation (which gradually erodes the power of purchase). In addition to gold, an investor “may also be interested in silver and platinum”, judge Karl Toussaint du Wast, these precious metals having the advantage of not being held by the States (their central banks), unlike so.
On the stock market, betting on energy-related stocks…
On the stock market, investors can consider betting on energy-related stocks (especially gas or oil). “It is an opportunist choice, linked to the war in Ukraine, which has highlighted the dependence of European Union countries (in particular Germany, for Russian gas) on fossil fuels from Russia. Hence the awareness of the authorities of the need for a profound change in favor of renewable energies such as solar, hydropower and geothermal energy, while wind power (deemed not very ecological) is more controversial”, notes Karl Toussaint du Wast.
…artificial intelligence and the Metaverse
Although technology and growth stocks have generally not been popular, in the current context of rising inflation and long-term interest rates, an investor “can nevertheless consider looking into two themes: shares linked to artificial intelligence (AI) and those linked to the Metaverse, sectors still in their infancy and which retain strong potential over time, with expected growth rates well above inflation”, assert Karl Toussaint du Wast.
Indeed, while robots are still relatively unautonomous, the level of intelligence is bound to develop. “And listed companies betting on this emergence could experience double-digit average annual growth over the next 20 years,” the expert judges. As for the Metaverse, it is a new capital revolution in the History of Humanity, according to him. “The Earth, as we know it, will be duplicated in virtual version. Companies will develop diverse and varied services, generating billions of dollars in new wealth.”
Tertiary real estate, better than residential real estate?
Real estate is a traditional track to follow in times of high inflation. However, it is better to choose good niches. While the purchasing power of households is an increasingly important issue, the State “could put a spoke in the wheels of investors in residential real estate, by putting in place mechanisms to control rents”, estimates Karl Toussaint du Wast, who says he prefers commercial real estate. Better protection against inflation, a priori. “Taking inflation into account in commercial leases, with an indexation mechanism, makes it possible to cushion the shock in times of sharp rises in consumer prices,” notes the expert.
What investments to avoid in times of high inflation?
Conversely, an investor wishing to protect himself against the impact of inflation should a priori avoid bonds, whether sovereign (government bonds) or private (corporate bonds). Indeed, government bonds have a negative real return (their yield minus inflation), while corporate bonds “will suffer from the rise in the key rate of the monetary authorities and the slowdown in growth”, warns Karl Toussaint du Wast.
On the stock market, it is preferable to avoid listed companies “displaying abnormally high valuation multiples (companies whose shares are very expensive, editor’s note)”, judge Karl Toussaint du Wast. Indeed, these stocks tend to suffer more than others when inflation and long-term interest rates rise sharply. Finally, it is better to “avoid companies dependent on energy (and in particular Russian gas)”, judges the expert, who expects in particular headwinds for the German stock market in the coming months.
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Inflation: the sectors to bet on on the stock market… and those to avoid
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