The best bet to make money in the stock market during inflationary periods is to take exposure in equities. Equities are well suited to outperform inflation and grow your portfolio over time. However, there’s a twist to the investing process in equities. You need to be careful in picking the right stocks and sectors to bring the best out of the potential of equities. Here’s why.
Although some price rise is considered good for the economy, runaway inflation can play havoc with the economy. Central banks, therefore, keep raising rates to tame inflation. But, as rates rise, there is an impact on corporate profits and earnings.
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Expecting a broad-based rally in stocks may not be the right approach. Some sectors get negatively impacted while a few others may show enhanced momentum in an inflationary environment. Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organisations, says, “We’re looking at four key sectors that are expected to be ‘resilient in this current environment’. These include healthcare, luxury goods, energy and agriculture and are expected to maintain margin, despite inflation and interest rate hikes.”
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Nigel Green is bullish on these key sectors during inflationary periods:
- Healthcare is a robust sector as people will always need to stay healthy – this has come into focus more than ever since the pandemic. Also, despite wider market volatility, there’s strong earnings potential due to ageing populations and other demographic changes. Plus, healthcare is becoming increasingly tech-driven, which offers fresh opportunities.”
- Luxury goods can maintain margin due to the inherent aspirational ‘elite and exclusive’ aspect of the sector.
- Energy because there’s a shortage of energy in the world right now.
- Agriculture is another one as populations in emerging markets around the world are eating more meat. As they eat more meat, there needs to be more grain produced.
