Cory Diary : Inflation Driven Earnings

Inflation-Driven Earnings: What Do I Mean?

Companies with a strong moat can raise prices as needed to counter various pressures, such as inflation, rising utility costs, manpower expenses, tariffs, taxes, or increased demand for their services due to supply and demand dynamics. Other factors may also apply. The essence of this moat is the ability to maintain or grow earnings, even during challenging economic times.

Who Are These Companies?

Ability to "hum along with inflation" and maintain stable earnings, even in changing economic conditions.

Examples include CapitaLand Integrated Commercial Trust (CICT), Frasers Centrepoint Trust (FCT), and Big Tech firms. These entities provide essential or lifestyle services. For instance, mall REITs like CICT and FCT can adjust rents in line with inflation, ensuring stable earnings. While their profits may not be exorbitant, they are reliable, as these companies are closely monitored for operational stability. Their performance often aligns with a country’s development and reflects its social standards. These REITs aren’t the cheapest options—HDB shops or alternative local competitors often provide lower-cost alternatives nearby. However, when economic conditions worsen, consumer traffic may shift to more affordable options.

Big Tech companies cater to modern lifestyle needs beyond what malls offer. They typically hold a strong global niche, making it difficult for local governments to regulate them unless, like China, a country is large enough to block them and develop domestic alternatives. Big Tech firms demonstrate robust and consistent earnings growth, often surpassing local banks’ performance by significant margins. Their growth and stability enable them to weather negative foreign exchange impacts over the long term.

Interestingly, local banks also benefit indirectly from high interest rates used to manage inflation. While recent rate reductions may slightly lower their profits, this isn’t necessarily negative. A healthy and profitable local economy supports their lending activities, which form the core of their earnings. When a business is highly profitable, a slight reduction in margins to ensure long-term sustainability can be a smart strategy. Thus, excluding banks from a portfolio simply because their returns drop by 5% to 6% may not be wise, especially when alternatives may not offer comparable overall stability and growth.

For now, I’ll focus on these three segments—mall REITs, Big Tech, and local banks here. Their earnings can rise with inflation, yet they remain resilient even in low-inflation environments. Are these “Goldilocks” investments? Regardless, the stock market is currently experiencing one of its most polarizing bull runs.

Cory Diary

2025-0816

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Disclaimer: The articles presented in this blog reflect personal opinions and are intended for informational and sharing purposes only. Not responsible of errors. Readers are advised to seek professional guidance when making financial decisions and should take full responsibility for their choices.