Marc O. Schmidt Column: Inflation Panic: Investors Must Act! | News

Stock markets have come under strong selling pressure recently. This is due to concerns about inflation and interest rates, which are lowering investor sentiment. Annual US inflation was +8.6% in May, as announced last Friday. This high rise shows that inflation has still not reached its peak.

For this reason, the US Federal Reserve expects a longer series of sharp interest rate hikes. It should also lead to an increase in interest rates on government bonds. Consequently, it is quite possible that capital will increasingly shift from the stock market to the bond market.

The specter of inflation is also mischievous in Europe

In Europe, too, the topic of inflation is ubiquitous in the media. In the euro area, the inflation rate was at times 8.1%. The European Central Bank (ECB) is therefore currently introducing a change in monetary policy, albeit very slowly and at a low level. It was recently decided to end bond purchases from July and raise the key interest rate by 25 basis points for the first time in the same month.

There is no improvement so far

However, the measures taken by the ECB are not expected to have a quick effect on reducing inflation, as the current price increases can be attributed to external circumstances, notably problems in the global supply chain and the aftermath of the war in Ukraine. In other words, factors that could be little or not influenced by increases in interest rates.

High inflation will be with us for a long time. ECB economists expect inflation at 6.8%. throughout 2022 and 3.5 percent. in 2023 As the ECB has had a tendency to underestimate inflation for months, inflation rates can also be significantly higher.

Stocks as a hedge against inflation

Hence, there is a need for action on the part of investors because with low-yield investments such as money on demand, term deposits, life insurance or federal bonds, there is a risk of losing real assets in the coming years after inflation. Especially in times of high inflation, stocks are especially attractive as they have historically developed much better than all other forms of investment.

Strong business development at TotalEnergies

For example, stocks of companies that benefit from rising energy prices or offer special protection against inflation are now suitable for investors. This includes TotalEnergies (WKN: 850727 / ISIN: FR0000120271). The French oil company was able to increase sales in the past fiscal year 2021 by 49 percent to 156.2 billion euros thanks to higher crude oil prices. It achieved a profit of EUR 13.6 billion (EUR 6.14 per share) after a loss of EUR 6.4 billion in the previous year.

Analysts forecast a further increase in revenues in the current year 2022 to EUR 266.6 billion and earnings per share EUR 10.68. As such, there is a good chance that the sharp upward trend in stocks that started at the end of 2020 will continue.

Total energy chart: Boerse Stuttgart

Pernod Ricard’s stock (WKN: 853373 / ISIN: FR0000120693) is also particularly promising in the current inflation environment. The Paris-based group is one of the world leaders in the spirits industry and has many well-known brands under its roof, such as “Havana Club” rum, “Absolut” vodka and “GH Mumm” champagne.

Spirits giant Pernod Ricard could add rising energy and raw material costs to its selling prices. High inflation also fuels income here. (Image source: Pernod Ricard Germany press photo)

Pernod Ricard is taking advantage of high inflation

Due to its extremely strong market position and brand loyalty, which is particularly evident in the spirits sector, Pernod Ricard has a price power, which allows it to pass on higher energy and raw material costs to its customers through price increases. As a result, high inflation also increases income.

However, even in times of low inflation, sales and profits show a steady upward trend that is likely to continue in the current fiscal year. In fiscal year 2021/2022 (end of June 2022), analysts expect sales of EUR 10.4 billion (previous year: EUR 8.8 billion) and earnings per share of EUR 7.80 (previous year: EUR 5.93) ).

If you want to arm yourself to invest against rising stock market inflation, you can take a closer look at the following index certificate (WKN: DA0ABD / ISIN: DE000DA0ABD6) for the European Inflation Index. In addition to TotalEnergies and Pernod Ricard, this index also includes seven other stocks that may provide protection against high inflation. These include, for example, RWE and Deutsche Bank. The index also includes Xetra-Gold certification, which is fully backed by physical gold.

Image Source: Unsplash / roman-wimmers

Post-inflation panic: investors must act! it first appeared on the INSIGHTS market.

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