Brace for Hyper-Inflation: How Should We Manage Our Portfolio?

Junho Jung

There are growing voices in various media over concerns about inflation. Inflation is a term that refers to a rapid rise in prices, and if the phenomenon occurs, the prices of various daily necessities may rise, preventing the purchase of goods needed for daily life. In this article, we will look at economic indicators and stocks that tell us about this inflation.

Inflation-linked Government Bond

Unlike ordinary government bonds, the bond literally reflects inflation, and operates in a structure in which the principal of the bond increases by the amount of inflation. The consumer price index determines how much inflation has progressed, and the investment principal is adjusted every three months according to the index. If inflation is 1%, and $100 is invested in bonds, the principal increases to $101 in line with inflation.

The bonds issued in Korea since 2007 continue to be issued, and even if the principal increases due to inflation, they are not taxed for the increase.

Food stocks

How is the food made? When grain is produced overseas, we import them and the food is made in Korea. Therefore, food stocks are bound to be particularly affected by grain prices and exchange rates. Companies that produce food like this are bound to be particularly affected by inflation, and accordingly, stock prices fluctuate significantly.

If grain prices rise, food companies burdened by soaring raw materials will be forced to raise food prices. In particular, as prices of wheat, corn, and rice, which are essential ingredients for daily necessities such as ramen and rice, are soaring, companies that produce various foods should observe their margins and establish appropriate investment strategies.

Bank stocks

Banks are particularly an industry that benefits greatly from inflation. If inflation occurs in earnest, the government will consider raising interest rates to stabilize the economy, and if interest rates rise, banks’ lending rates will also rise, earning that much additional profit. In addition, bank stocks give a lot of dividends, so they are stock stocks that greatly help manage portfolios when interest rate hikes fall sharply. It would be wise to invest for a long period of time by continuously increasing dividends or choosing bank stocks with good operating profit.

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