Fight or flight? What rising interest rates, inflation and volatile markets mean for investors

SINGAPORE: It has been a punishing six months for investors.

From stocks to bonds, markets have been dealt blows from the Russia-Ukraine war, surging inflation and rising interest rates. COVID-19 uncertainties linger and the risk of recession is back on the radar.

Moving into the second half of 2022, experts said the coast is far from clear.

“We are not out of the woods,” said IG market strategist Yeap Jun Rong, noting higher recession risks in the United States as policymakers wrestle to get inflation under control.

“Market sentiments are expected to remain vulnerable, with catalysts for further selling potentially coming from slowing economic indicators over the coming months.”

With that, what should an investor do?

Some may have retreated to cash – which is not entirely a bad idea to make sure you have sufficient funds as a buffer against surprise expenses or loss of income amid uncertain times. Also, having some cash on the sidelines allows one to “be ready for opportunities”, said CGS-CIMB remisier Ernest Lim.

But in the long run, inflation will erode the value of cash savings. So while caution is warranted amid stomach-churning volatility, experts said it may be better to stay invested.

The key is to be selective, said DBS Bank’s chief investment officer Hou Wey Fook. “To avoid an erosion of spending power and tackle the challenge of rising prices, one should stay invested in quality, income assets,” he told CNA.

Investors should also avoid excessive leverage given the rising interest rate environment, he added.

UOB Asset Management’s senior director of multi-asset strategy Anthony Joseph Raza said markets will remain under pressure in the coming months amid inflation risks, but “there are still positives for mid-to-long-term investments”.

Where are these pockets of opportunity that may help investors to guard against higher inflation and slowing economic growth? Here’s more from the experts.


One asset class is commodities, which have raked in some significant gains this year.

Within which, gold is “an excellent store of value and inflation hedge”, said Mr Hou.

Gold, with its dual appeal as a safe-haven asset and a luxury good, sees demand during both good and bad times. The precious metal has also shown an inverse correlation with real rates, with gold prices up when inflation is high and negative rates threaten to erode the value of cash holdings, he explained.

There are various ways for one to gain exposure to gold, such as buying physical gold bars or investing in gold exchange-traded funds (ETFs) or managed funds.

Mr Hou prefers the latter, noting that ETFs and managed funds are more diversified and allow for lower capital commitments. They also remove the logistical costs of owning physical gold.

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