×

Invest with an Eye on Inflation

Governments around the world are pulling out all the stops to counter the global downturn. From cutting interest rates to revving spending in efforts to boost their domestic economies, these measures do have bearings on an individual's investment decisions.

For one, Joseph Poon, head of Macquarie Private Wealth, is advocating his clients to go very short-term in fixed income and avoid longer-term bonds.

"With so much money that is being pumped into system, at some point in time, inflation will rear its ugly head somewhere down the road. Interest rates are far too low, yield curve is still very flat. So if you’re buying longer-term fixed income, you may suffer mark-to-market losses when interest starts rising, " Poon says on CNBC Asia Pacific's "Protect Your Wealth" segment.

Poon views gold as a useful asset that can help diversify and cushion one's portfolio against inflation. He suggests buying physical gold as well as stocks of some gold-mining companies.

"As you can see around the world, most of the major banks are printing money. When you have too much supply in anything, the value will tend to go down. So you look towards more real commodities, and certainly, gold is one of those things that will hold its value during inflationary periods," he explains.

Poon says it is time to keep a careful eye on Asian equities and layer one's investments over time. While there is still a lot of uncertainty in the marketplace, the prevalent systemic risks and the risk of banking failure of last year have eased.

"What we want to avoid this year, because of the uncertainty in the financial sector, is banking in general," he says. "(Look) more towards a company that has low-leverage, low gearing, has a decent cash flow, not depending too much on credit, and not too many refinancing issues. Those tend to be an early cycle rebound for the equity markets, and tend to be in the consumer discretionary and tech sector."

Think of infrastructure stocks too. Poon believes the sector will yield stable returns, as it will benefit from government efforts to stimulate growth through infrastructure spending.

Comments? Questions? Send them in here.


Catch "Protect Your Wealth" on CNBC's Asia Pacific network every Tuesday on "CNBC's Cash Flow," Wednesday on "Asia Squawk Box" and Thursday on "Capital Connection."