Inflation squeeze: Investors seek assets that outinflate rising costs

The recent surge in inflation has had a profound impact on the investment landscape, leading to an increase in product prices and living costs. These conditions require investors to strategically select assets that can generate returns that beat inflation.

One such investor, Phongthorn Thavontanakul, founder and CEO of Lief Capital Asset Management, shared his insights on investments that can weather economic uncertainties, such as stocks, debt instruments, real estate investment trusts (REITs), commodities, and gold.

Stock investment returns from 1947 to 2021 showed that the real return differed depending on inflation rates. According to Phongthorn Thavontanakul, when inflation is low, growth stocks in areas such as technology, innovation, or luxury goods are good investments. In contrast, during high inflation, it is advisable to invest in safe stocks like essential goods, hospitals, infrastructure, and public utilities.

Debt instruments, particularly short-term ones, may yield low real returns or even negative returns after inflation. Inflation-linked bonds, however, are an interesting option as their interest rate varies according to inflation.

Investments in REITs have had attractive returns in the past. However, the real estate sector has not yet recovered, making this type of investment less capable of withstanding inflation. This makes REITs suitable for those who can take relatively high risks and invest for the long term.

Commodities, including gold, oil, and natural resources, have been a factor behind the rise in inflation. To diversify risk in a commodity portfolio, a mix of 50% gold and 50% other natural resources could generate an annual return of up to 9% and help manage volatility in an overall investment portfolio.

Gold investment is seen as a good hedge against inflation. Historical data shows that when inflation is high, gold prices tend to increase. However, investing in gold can be inconvenient due to its physical nature and storage challenges.

High-dividend yield stocks

Investing in high-dividend yield stocks is advised during periods of high inflation. Stocks offering high dividends can be found on the Stock Exchange of Thailand (SET) website. The dividend yield should be greater than inflation rates, deposit interest rates, and government bond returns.

Investing in REITs requires a study of economic trends and market outlook. Despite the current unattractive environment, several funds still generate consistent returns, sometimes greater than 5%.

With inflation likely to remain elevated for another year, investors should search for various assets that can beat inflation. In Thailand, inflation is gradually increasing, but with a balanced investment portfolio and careful study of related information, investors can maintain the value of their money and beat inflation.

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