Are we expecting huge inflation when we enter recovery period?

(8th Feb, 2021) Why we are having inflation hitting us soon in the equity market?

We first encountered “Quantitative Easing” (QE) back in 2008 during the subprime mortgage crisis. And the word QE is referring to central banks “printing money”, and injecting to the economy or financial markets. Formally speaking, the central banks can purchase the bonds/loans/mortgages in the financial market, meaning that the central bank is lending money to different companies in need. During this coronavirus economy crisis, the central banks around the world is using QE to inject money to the economy, but this time, they are injecting the money to the people in need (instead of just to the big firms). In 2020, the Global Quantitative Easing was estimated to reach USD6 trillion (estimated by Fitch Ratings), and USD6 trillion is around 4% of the total world GDP (taking the 2019 data from the World Bank, world GDP is around USD142 trillion). On top of that, the US is giving another USD1.8 trillion stimulus plan to the US economy as soon as they can. So more cash is circulating in the economy, and the cash you are holding is not as valuable as before. We are expecting the inflation effect will intensify in the coming months or few years around the world, because all the capable governments across the globe were printing money to help their citizens in different forms.

What to invest to speculate or hedge the inflation effect?

1. Gold — From 2009–2012, the gold price increased for more than 60%. I’m not saying the gold price will go up another 60% from today, but I want to sincerely introduce gold as the scarce resource, limited in amount, will have high growth potential and to hedge some inflation risk. Worth having some portion of it in your portfolio

2. Inflation-linked Bond — Bond itself will be hurting during inflation because of the fixed amount of payment from coupon, however, inflation linked bond will be benefited during inflation. This is because the principal value of the Inflation-linked bonds will be periodically adjusted according the inflation rate. Here, we have to be careful which country’s inflation linked bond to invest in, you can focus on the country that will expect to have higher inflation rate.