Inflation time is coming… Defense with energy and materials | Hankyung.com

As the US 10-year Treasury bond yields hit the highest level in the last year, the stock market is sharply rising, centering on technology stocks that have rallyed in a low interest rate environment. The Korean stock market is no exception. The KOSPI index plunged 2.80% on the 26th.

The reason for the rise in market interest rates is because of expectations that inflation will become a reality if economic activity normalizes with vaccination. Experts advise that at least in the first half of this year, inflation is likely to become a hot topic in the stock market, so it is time to devise an asset allocation strategy that takes this into account. In the stock market, it is pointed out that the proportion of promising industries such as materials, energy, finance, etc. should be increased during the period of interest rate rise, while oil, copper, and inflation-linked government bonds are also included in the portfolio.

'Inflation Time' is coming...

○Inflation leads to stock market adjustment

The global economy hit by Corona 19 is showing signs of recovery. The prices of raw materials such as crude oil are steadily rising, and the manufacturing purchasing managers’ index (PMI) and consumer price index (CPI) in major countries have also rebounded. Conversely, the stock market has been undergoing corrections for over a month. The securities industry acknowledged the trend of the stock market and predicted that inflation would continue. Kim Yong-gu, a researcher at Samsung Securities, said, “Because of the base effect, consumer prices will increase sharply in the second quarter compared to the same period last year.” I said.

○Respond mainly to materials and energy

When the economy changes, the securities industry proposes a countermeasure based on the global investment bank Merrill Lynch’s’investment clock’ model. According to this model, investment in bonds is promising when inflation is rising, value stocks and raw material investors, and inflation are stable and stock markets are attempting to rebound. We recommend investing in growth stocks when the economy is recovering without rising prices.

Experts advised that now is the time to reduce the share of growth stocks and increase the share of value stocks in the portfolio. This is because most of the industries that showed outstanding performance during the period of interest rate hikes belong to value stocks. According to Hana Financial Investment, during the period when the US 10-year Treasury bond rate rose in the past decade, the stock prices of banking, energy, steel, and insurance sectors surpassed the KOSPI index increase rate.

It is also a common opinion to invest in materials, industrial goods, and energy industries. It is explained that these sectors can produce high returns in the face of inflation, when oil and industrial metal prices are rising, as they have a high rate of product price transfer based on cost increase. Lee Sang-min, a researcher at Kakao Pay Securities, said, “The price of raw materials and interest rates will rise in a trend thanks to the decline in corona 19 cases and economic stimulus measures.” Is high.”

Kim Han-jin, a researcher at KTB Investment & Securities, said, “Since 2017, cryptocurrency and gold prices have responded more flexibly than other assets when the market currency volume (M2) increases due to low interest rates. Conversely, if interest rates rise, it means that price volatility increases. “I do.” He added, “By March, asset prices will be differentiated by focusing on crude oil, copper and value stocks, which are less burdened by rising interest rates. Some global investment banks have had negative outlooks for gold, a traditional inflation hedge asset. Morgan Stanley predicted on the 21st that “by the end of this year, gold will be below $1,800 per ounce.”

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