Us inflation in March was 8.5 per cent year-on-year, up from 7.9 per cent in February and once again breaking a nearly 40-year high.What kind of assets should investors choose in times of inflation?

Wells Fargo & Co studied 15 major asset classes and calculated the best and worst performers during the period of inflation since 2000.

Top assets during inflation

Wells Fargo & Co found that oil prices have risen more than 40 per cent during a period of inflation since 2000, surpassing any other major asset class the bank focuses on and about three times the average increase of the 15 assets studied by Wells Fargo & Co.

The US oil fund (USO), the main ETF-- that tracks oil prices, rose nearly 65 per cent in 2021, outpacing the ETF of all asset classes tracked by Wells Fargo & Co. It has risen nearly 18% so far in 2022.

The second largest asset in the inflation period is not gold, which ranks only third. Wells Fargo & Co found that emerging market stocks rose 18 per cent during the post-2000 inflation period. However, Vanguard FTSE Emerging Markets ETF (VWO) is up only about 2 per cent this year.

Inflation has different effects on S & P 500 stocks

What is the impact of inflation on S & P 500 stocks and other market stocks? The answer is that small-cap stocks outperform large-cap stocks, while S & P 500 growth stocks outperform value stocks.

This is a bit counterintuitive because energy stocks are usually included in the value index and ETF. However, stocks in the s & p 500 rose only 8 per cent during the inflation period, almost half the 12 per cent rise in growth stocks. The return of value stocks is only half of the 16% rise of cyclical stocks, which tend to rise and fall with the strength of the economy.

If growth stocks are doing well, small-cap stocks are even better. Since 2000, us small-cap stocks have risen 15 per cent during periods of inflation. Wells Fargo & Co speculates that smaller companies offer products that are more difficult to replace, which gives them some pricing power. In addition, small companies usually grow faster than large ones.

Deal with inflation rationally

Wells Fargo & Co stressed that do not let inflation risk drive you out of the S & P 500 stocks, or ordinary stocks. Despite the frightening risk events, data since 2000 show that the stock market can still achieve impressive gains in the face of inflation.

In addition, Wells Fargo & Co expects bonds to meet more selling at this stage. However, bonds are still necessary for a diversified portfolio. A 5% fall in investment-grade bonds during inflation is hardly a catastrophe.

Anti-inflation assets-anti-inflation bonds

When it comes to anti-inflation bonds, I believe Hong Kong people are most familiar with the iBond issued by the Government. IBond is known as inflation-linked bonds, and each issue of iBond will be listed on the Hong Kong Stock Exchange for public subscription. Every six months, iBond pays out interest based on the average annual inflation rate of the Composite Consumer Price Index (CPI). When the three-year period expires, the Government will repay the principal in full.

IBond is issued by the government and pays interest on a regular basis, so its returns are more stable and the risks it faces are relatively low. Even if the increase in the Composite Consumer Price Index is lower than expected, resulting in a corresponding reduction in your interest rate, the guaranteed interest rate will not be lower than 2%, which is a low-risk choice for anti-inflation assets.

It can be said that whether it is iBond, green bonds, the Ministry of Finance or retail bonds issued by different enterprises in Hong Kong, these products enable more efficient financing and allocation, and open up channels for many small investors to invest in bonds.

The Hong Kong SAR government has resumed retail green bond issuance with a maximum of HK $20 billion and the minimum annual interest rate will be raised from 2 per cent to 2.5 per cent. The subscription time of Fortune is from 9:00 on Tuesday, April 26, 2022 to 10:30 on Friday, May 6, 2022, with a maximum of 12 free for limited time subscription.