Citi Says This is How to Hedge the 3 Main Stagflation Risks of High Inflation, Weaker Growth, and Higher Rates
2022.05.02 16:27
Citi Says This is How to Hedge the 3 Main Stagflation Risks of High Inflation, Weaker Growth, and Higher Rates
Citi’s global equities strategist Robert Buckland tells clients how to hedge their portfolios against the three main stagflation themes of high inflation, higher interest rates, and weaker growth. Buckland said this is done by going long commodity stocks, long defensives, and short (real) rate-sensitive growth stocks. Further, investors fearing that commodity prices are rolling over should move into financials.
On the first stagflation risk of high inflation, Buckland said the Energy, and Metals & Mining sectors provide good inflation hedges. He notes that more commodity-exposed equity markets, such as Australia and the U.K., are proving resilient.
On the second stagflation risk of higher rates, the strategist said growth stocks are especially sensitive to higher real rates. “An increase in the U.S. 10y TIPS yield (currently -0.1%) to +1.0% would imply the MSCI US Growth index (NASDAQ proxy) derating from the current 28x to 18x,” he commented.
On the third stagflation risk of weaker growth, he said defensive sectors like Utilities, Consumer Staples, Health Care, Telecoms should perform better on EPS revisions. Also, U.S. indices/currencies are more defensive than foreign markets.
