How to get around the risks of stagflation? 3 investment strategies

Как обойти риски стагфляции? 3 стратегии инвестирования

Economy, stagflation, Is the economy, in which there is simultaneously stagnation of activity and acceleration of inflation. This phenomenon was first noted in the 1970s., when the oil shock led to a prolonged period of price increases, but at the same time, GDP growth dropped sharply.

Today's picture is similar: energy prices have risen sharply, which heightens fears about inflation.

Read also: They will save your portfolio from inflation. Promotions, rising following prices

Morgan Stanley analysts noted in their October report, that the "supply shock" will affect the processes in the economy. And this worries investors.

“Disruption to global supply chains has created a shortage in such areas, like energy and semiconductors. These situations may drag on until next year., what, probably, will keep inflationary pressures high in the short term ", - according to Morgan Stanley.

In the context of stagflation, measures, taken by the authorities to curb inflation, - control of wages and prices or cuts in monetary policy - can further increase unemployment.

Goldman Sachs experts warned in October, that stagflation could be bad for stocks.

How to get around the risks of stagflation? Experts suggested 3 strategy:

1. Barbell strategy

The barbell strategy combines the two extremes of high-risk and risk-free investing in an effort to balance risk and reward..

Morgan Stanley believes, that investors can adopt a barbell strategy and own low-priced stocks, having good dividends and profitability indicators (namely free cash flow, cash amount, which the company generates after accounting for churn to maintain costs).

Investbank considers, that this will help insure against pullbacks and uncertainties about the next market movement.

2. Invest in pricing companies and avoid growth stocks

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Rob Mumford of Gam Investments invites investors to consider companies, oil and gas producers.

"The main thing, be in pricing companies, and not in those, which are in the downstream ", - thinks the strategist.

Upflow refers to the raw materials, necessary for the production of goods, downstream is operations, located closer to consumers, where products are manufactured and distributed.

Semiconductor companies are one example of upstream manufacturing.. 2021 has become a year of global chip shortages, affecting all sectors of the industry.

Mumford Advises Investors To Be Wary Of Growth Stocks, as they will be vulnerable, especially if inflation starts to rise above expectations.

Read also: Growth passed by

3. Stick to value and cyclical stocks for now

According to Morgan Stanley, with rising inflationary expectations, value and cyclical stocks benefit most.

“If the risk of stagflation continues, reversal trading strategy can stand out in terms of profitability, - indicates the investment bank. "This means buying the most lagging stocks last month and expecting a price reversal next month.".

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