Investors should hold stocks to hedge against inflation, Mark Mobius said in an interview with CNBC.
He said investors should have money in companies that can adjust to higher prices.
Mobius sees the Fed possibly raising rates to 6%-7%, but such hikes should not deter investing in equities.
Investors should invest in stocks to hedge against inflation, even though the Federal Reserve is likely to keep raising interest rates to cool high prices, investment veteran Mark Mobius told CNBC on Friday. .
His interview came two days after the Federal Open Market Committee raised the federal funds rate target for the first time since 2018 to fight hot inflation. On Wednesday, policymakers raised rates by 25 basis points to a range of 0.25% to 0.5%, embarking on the path they announced late last year to combat the inflation which has since increased to 7.9% in February.
“[Anybody] who wants to protect himself against this inflation must hold shares. They need to own companies that can adjust their prices to inflation,” said Mobius, a pioneer in emerging market investing.
Commentary from the Fed this week suggested that policymakers expect to raise the interest rate six more times this year and they see the benchmark rate hitting 2.8% in 2023.
“So I think you’re definitely going to see higher and higher rates. And I expect to see rates in America go up to 6% or 7%,” Mobius said. The target federal funds rate has not been at 6% since 2001 under then-President Alan Greenspan.
“But that doesn’t mean the stock market has to go down. As you know, if you look at historical stock market interest rates, there’s not a lot of correlation,” said Mobius, who has went on to say that investors should have exposure to equities to hedge against inflation.
the S&P500 this year had fallen into a correction, or a fall of 10% or more from a recent high, in part as investors braced for higher borrowing costs. Some analysts released notes this week showing that the broad stock index can rise during cycles of rising rates.
Independent research firm CFRA noted that the FOMC this week kicked off its sixth round of rate tightening since 1994. The S&P 500 “slumped five times in the first 30 days following the initial rise since 1994, but fell restored to 80% progression rate by the six month mark,” wrote Sam Stovall, CFRA Chief Investment Strategist.
Read the original article at Business Intern