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How inflation can be a friend of an investor


Interest rates are rising and inflation is at 5.1%, the highest level in many years.

This is a signal to investors to change course. But that doesn’t mean earnings from stocks. Even high inflation can create opportunities.

Here are three key issues that investors need to be aware of.

1. Not all inflation is created equal

The first aspect that needs to be understood about inflation is that it is felt differently in different industries.

Often the ability to pass on rising resource costs determines how well an industry will perform in a world of inflation.

This makes it important for investors to look for sectors and companies that can adjust their prices before inflation, or that are price-resistant.

As a benchmark, the materials and energy sectors sell products such as oil that are at the beginning of the supply chain. So they have good opportunities to shift costs.

Technology-based stocks also tend to have a high degree of resilience to price increases. This is because they tend to have huge benefits. Therefore, higher prices for input materials can have only a limited effect on their cost.

Industrial stocks can also be resilient to inflation due to their ability to value commodities in a way that reflects the dynamics of supply and demand.

It was interesting to see how Jaaims is already moving into these sectors. This emphasizes the ability of the algorithm to capture changes in company data in real time, such as value for money (PE), and adjust inventories accordingly.

2. Rising inflation is global

Australia is not the only country experiencing rapid inflation.

In the US, the cost of living has risen by 8.5% over the past year. The UK has just recorded 6.2% inflation. In the Eurozone, annual inflation is expected at 7.5%.

The surge in inflation is not limited to rich economies. Emerging markets and emerging countries have also been hit by a surge in prices.

The World Bank describes the scale of the problem, saying: “78 out of 109 developing countries and developing countries face annual inflation rates above 5%.”

This global upward trend in prices is the result of a number of factors. Among them are the high level of state support to help the economy in the fight against the COVID-19 pandemic, problems in supply chains – again caused by the pandemic, and rising commodity prices, exacerbated by the conflict in Ukraine.

The result is that whether you invest in Australian stocks or global stocks, the same issues apply to choosing stocks that can withstand high inflation.

3. A passive approach can bring dim profits

Given the factors that cause the cost of living, there are many opportunities for rising inflation. And it won’t be a quick fix for central banks.

In this environment, the passive investment approach of index-based exchange-traded funds (ETFs) is likely to yield dim results.

As I mentioned, some sectors and companies will tolerate inflation well. Others will be negatively affected. The trick for investors is to sort them out.

Fortunately, the Jaaims algorithm does just that.

What’s more, our recently launched AI Active Global Long Portfolio, driven by Jaaims technology, is investing in those sectors that are likely to thrive in today’s high-inflation world.

Australians, who have to make their money work harder, at a time when rising prices are putting pressure on home budgets, are getting rid of investing.

Any advice is general in nature and does not take into account the specific needs and circumstances of the viewer. You need to consider your financial situation, goals and requirements to determine the type of tips and products that best suit your needs. Jaaims Australia is the authorized representative of Jaaims Technologies, AFSL 519985.

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