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通胀忧虑压顶!美股指期货跌势明显,投资者该如何对冲风险?

Inflation concerns are at their peak! There is a clear decline in US stock index futures. How should investors hedge against risks?

英為財情 ·  Feb 23, 2021 18:57

Source: British financial situation

Author: Mo Ning

10.pngNiuniu knocked on the blackboard:

  • Inflation has become a major concern for institutional investors

  • In the next two months, these three factors will also fan the flames of inflation.

  • Investors have to consider the sensitivity of the entire portfolio to inflation

  • Overall, cyclical value stocks tend to perform higher when inflation is high.

Fears of a resurgence of inflation are hanging over global stock markets.

Yields on 10-year treasury bonds jumped last week, from 1.2% the previous Friday to 1.34% last Friday. Falling bond prices and rising yields usually reflect investor expectations of faster growth and the consequent rise in inflation. Inflation will reduce the value of interest paid on bonds.

In that expectation, benefits from copper as a base commodity soared, with LME copper rising above the $9000 mark, the highest since September 2011, and up 17.4% so far this month, on track for the biggest one-month gain on record.

But investors in American stocks are fidgeting. The s & p 500 fell 0.7% last week, while the Nasdaq composite index plunged 1.6%. On Monday, the futures of the three major u.s. stock indexes fell sharply, with the s & p 500 index futures falling nearly 1% at one point.

Why is the market suddenly anxious about inflation? How should investors hedge against the impact of inflation?

Inflation has become a major concern for institutional investors

Since last spring, Washington has provided about $3,000bn in financial aid to American families, the unemployed and troubled companies; now the Biden administration is mulling a third $1.9 trillion rescue package.

Of course, it's not just America. The surge in inflation expectations has been fuelled by a surge in government spending and a surge in liquidity released by central banks in response to the epidemic. In October, the IMF predicted that average annual inflation in advanced economies would double to 1.6 per cent in 2021 from 0.8 per cent last year, while Citigroup Inc estimated that global inflation would rise from an average of 2 per cent last year to 2.3 per cent this year.

Top asset managers, including Mr Schroeder, say, "inflation is the top consideration for our large institutional clients. "

If COVID-19 's vaccine works and the global economy recovers fully, it could trigger a massive increase in previously pent-up consumer spending, stimulating companies to respond to surging demand by offering prices and boosting inflation. And inflation erodes the value of money. When prices rise faster than wages, consumers will be strapped. In a worst-case scenario, inflation will unexpectedly rise sharply to more than 3 per cent by the beginning of next year, which could force the fed to raise interest rates faster and more aggressively than expected.

Lawrence Summers, the former Democratic Treasury Secretary, wrote an article in a Washington Post column in early February that Biden's stimulus measures "could trigger inflationary pressures never seen in our generation".

In the next two months, these three factors will also fan the flames of inflation.

In the next two months, there may be some developments to further support this inflation expectation. Morgan Stanley put forward three points:

The first is the decline of COVID-19 's confirmed cases / hospitalized cases. Morgan Stanley's US biotechnology team believes that with warmer weather and higher vaccination rates, the number of new confirmed cases in the United States may fall by about 50% by the end of April. Over the past week, the United States has added an average of 72831 new cases a day, down 44 per cent from the average two weeks ago.

The second is the passage of the US fiscal stimulus package. Yingwei has previously pointed out that as mid-March approaches, when 11.4 million workers are expected to lose their unemployment benefits, the Biden government is under pressure to quickly pass a $1.9 trillion epidemic assistance package. Morgan Stanley's public policy team expects the plan to be approved in mid-March and will eventually be between $1.0 billion and $1.5 trillion.

Third, global growth is accelerating. The bank's global economic team expects global economic data to accelerate from March / April (before the latest US fiscal stimulus package works).

How should US stock investors hedge the risk of inflation?

The University of Michigan recently released a survey showing that consumers expect inflation in the United States to reach 3.3% in the next 12 months, the highest level since 2014.

In this context, investors have to consider the sensitivity of the entire portfolio to inflation.

If price pressures rise, the borrowing costs of most companies will also rise, affecting profits. However, there are still some opportunities in the stock market. The key is to look for companies whose revenue growth exceeds the increase in production costs.

Yingwei previously reported that a study by Ned Davis Research showed that energy stocks had been winners during periods of high inflation over the past five years. Energy stocks have outperformed the S & P 500 in seven of the nine periods of high inflation since 1972, leading by a median gain of 14 percentage points, the agency said.

Confidence in the global economic recovery has sent oil prices soaring this year, driving shares of energy producers such as Exxon Mobil Corp and Marathon Petroleum Corp (NYSE:MPC) higher. Energy stocks ETF (Energy Select Sector SPDR ®Fund (NYSE:XLE)) are up nearly 22% this year, well above the 4% ETF of the s & p 500.

It is worth mentioning that Buffett's Berkshire NYSE:BRKb (NYSE:BRKa) also bought 48.5 million shares of Chevron Corp (NYSE:CVX) in the fourth quarter, worth $4.1 billion.

Societe Generale notes that mining stocks can provide better hedging when prices rise. BHP Group Ltd (NYSE:BHP) and Rio Tinto PLC Group (LON:RIO) are two mining leaders, both of which are trading at about 10 times expected earnings in 2021. Geoffrey is bullish on Anglo American and expects a surge in copper prices to be good for Freeport McMoran Copper and Gold (NYSE:FCX).

Overall, cyclical value stocks tend to perform higher when inflation is high, and the sales of these companies are sensitive to economic fluctuations and usually have low valuations.

Edit / isaac

The translation is provided by third-party software.


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