South African Inflation
How do I hedge against inflation that is on our doorstep with interest rates rising to cool down borrowing in the economy that will counter inflation eventually?
Inflation is caused by a rise in the price of goods or services. A rise in the price of goods or services is driven by supply and demand . A rise in demand can push prices higher, while a supply reduction can also drive prices. Demand can also rise because consumers have more money to spend.
Key companies that may benefit from inflation is banking and insurance, consumer staples and energy sectors (The energy sector is composed of companies focused on the exploration, production, and marketing of oil, gas, and renewable resources around the world) Renergen Limited is one of those companies.
“The consumer staples sector, includes companies that produce items such as food, beverages and non-durable (things that go bad, have expiration date) household and personal products. ... Any product considered a consumer staple is something that is essential or necessary for basic living.”
South African government bonds is also a good hedge against inflation but there is a lot to debate on this topic.
Banks make a substantial portion of their money from interest, if inflation rises interest will follow. This means that the banks will receive more money for loans at higher interest rates assuming the customer base stays the same or increases.
I will be looking at the first 2 as options but do your homework regarding the banking sector. Capitec, Investec, FirstRand, ABSA, Nedbank, Standard Bank etc.
Is gold an inflation hedge?
Gold is the traditional investment hedge against inflation, but its role as an inflation hedge is perhaps the most debated in the financial press and academic literature. Holding onto an asset like gold that pays no yields is not as valuable as holding onto an asset that does.
1nvest gold ETF is a possible investment to look at.
Real estate investment (REITs) are companies that own and operate income-producing real estate. Property prices and rental income tend to rise when inflation rises. An REIT consists of a pool of real estate that pays out dividends to its investors. (REITs) are companies that own and operate income-producing real estate. Property prices and rental income tend to rise when inflation rises. An REIT consists of a pool of real estate that pays out dividends to its investors.
I hold Store-Age Property REIT, this REIT is undervalued and is a very good long-term investment.
Technology and Communication services are capital light businesses
This sector should be safe from inflation
The big five, The group includes Google, Facebook, Apple, Microsoft and Amazon. For these companies, the spike in commodity prices doesn’t have any impact on margins.
Cloud and online companies
Tech stocks that are potentially at risk
If Companies depend on the price of raw materials and the costs can’t be passed on to the consumer it will have a negative impact. The PC market is hit by inflation due to chip shortages, and experts don’t expect this problem to be solved earlier than mid 2022.
I have Satrix Nasdaq 100 PRTF to give me a diverse exposure and most of these companies should perform during high inflation periods.
Do your investigation and make sure you understand what you are investing in to be comfortable and positive about your investment. These are all suggestions and you should do your own homework before investing.
Happy Inflation Investing