Which investment channel is crowned when inflation is hot?

Defensive on gold or real estate?

Inflation in the world has increased sharply along with commodity price storms, which are making investors anxious and looking for shelter. In the world, many investors withdraw from risky investment channels such as cryptocurrencies, securities… and look to safe investment channels such as gold, bonds, insurance, and savings.

Gold price in the world has increased by 10% since the beginning of the year. According to data from the World Gold Council, physical gold demand is at its highest level in a decade. Silver Bullion, a Singapore-based company, said his company’s gold and silver sales jumped 235% in the first week after Russia invaded Ukraine and continued to soar.

However, in Vietnam, the gold price difference is too big with the world price, causing gold investors to suffer heavy losses in the recent period. The lack of connection with the world market makes gold a risky investment channel, not favored by many investors.

Meanwhile, in Vietnam, cash flow seems to prefer to take refuge in real estate. Dr. Le Xuan Nghia, an economist, said that in 2022, cash flow will continue to increase strongly into real estate, despite rising inflation, mainly the speculative market. Besides, many investors are worried about taking profits in securities and pouring money into real estate.

Sharing the same opinion, Mr. Pham Anh Khoi, General Director of Real Estate Financial Services Company (FINA) also said that, real estate has a correlation with inflation, often increases in price with inflation, and is considered by investors as a safe-haven channel. Not to mention, the support package economy VND 350,000 billion is about to be deployed, of which nearly VND 114,000 billion is poured into the infrastructure, further supporting this investment channel to increase prices.

However, experts believe that real estate will only increase in correlation with inflation in the context that Vietnam’s inflation is gradually approaching the inflation target (4%). If inflation skyrockets, exceeding this number, lending interest rates will increase, thereby negatively affecting the real estate market, because the proportion of loans to real estate investors is quite large.

Another defensive investment channel that many people are interested in at this time is corporate bonds. With interest rates nearly twice as high as bank rates, corporate bonds are being sought after by many investors. According to the Vietnam Bond Market Association (VBMA), in the first two months of this year, the amount of corporate bonds issued to the market was about VND 26,000 billion, double the same period last year. However, according to experts, investors should choose to buy floating-rate corporate bonds to benefit from the rising interest rate, instead of choosing fixed-rate corporate bonds.

Stocks, Cryptocurrencies: Contradictory Outlook

According to Mr. Phan Dung Khanh, an economist, in the context of rising inflation, securities are one of the most negatively affected investment channels.

In fact, stock market has been moving sideways at 1,500 points for nearly 5 months and dropped sharply earlier this week. Recently, a number of industries such as oil, coal, nitrogen fertilizers, seaports, chemicals… VN-Index increased sharply, while many other industries fell very deeply.

“I think that the stock market outlook in the second and third quarters is not very good, because even if the war ends, inflation will still be very high, and countries will increase monetary tightening measures. Once countries tighten their currencies (such as raising interest rates, shrinking balance sheets, etc.), the global financial market, including Vietnam, will be adversely affected.“, said Mr. Khanh.

In the context of high inflation, Mr. Phan Dung Khanh said that it is advisable to hold assets and stocks in defensive sectors that are less affected by inflation.

This expert also gives advice, investors should automate finance to optimize business performance and enjoy compound interest. For example, with savings, investors can automatically deposit online to earn interest whenever there is a certain income in many terms and automatically combine the interests of the accounts to receive compound interest. Currently, on the online system of many financial institutions, there are quite a few automated investment tools for investors to choose from.

As for the cryptocurrency market, Mr. Khanh said that this market will still be adversely affected in the short term. Basically, the market will continue to move sideways, accumulate and have brighter prospects in the medium and long term. However, with digital money, there will be projects that are purged and disappeared, so investors need to be very cautious.

Especially, in the context of rising inflation and risky global financial markets, economic experts recommend that investors should not use leverage or borrow. Besides, it is necessary to maintain a certain amount of cash (about 10%) to be able to promptly take advantage of opportunities as well as restructure the investment portfolio.