Citi’s international equities strategist Robert Buckland tells shoppers tips on how to hedge their portfolios in opposition to the three important stagflation themes of excessive inflation, larger rates of interest, and weaker development. Buckland stated that is carried out by going lengthy commodity shares, lengthy defensives, and brief (actual) rate-sensitive development shares. Additional, traders fearing that commodity costs are rolling over ought to transfer into financials.
On the primary stagflation threat of excessive inflation, Buckland stated the Vitality, and Metals & Mining sectors present good inflation hedges. He notes that extra commodity-exposed fairness markets, reminiscent of Australia and the U.Ok., are proving resilient.
On the second stagflation threat of upper charges, the strategist stated development shares are particularly delicate to larger actual charges. “A rise within the U.S. 10y TIPS yield (presently -0.1%) to +1.0% would suggest the MSCI US Progress index (NASDAQ proxy) derating from the present 28x to 18x,” he commented.
On the third stagflation threat of weaker development, he stated defensive sectors like Utilities, Shopper Staples, Well being Care, Telecoms ought to carry out higher on EPS revisions. Additionally, U.S. indices/currencies are extra defensive than international markets.