The high cost of goods appears to be one of the biggest economic worries facing world leaders. The concern is well-placed. The last time inflation pushed this level was 1981, when high prices combined with a weak economy brought financial pain to many worldwide. In fact, 1 in 4 people in the developed world are currently struggling with a cost of living crisis according to a recent poll conducted by Ipsos for the World Economic Forum.
What Goes Up Must Come Down, Hopefully
Understandably, central banks are scrambling to raise interest rates to address creeping inflation. In the past month, the Reserve Bank of Australia raised its policy rate by 50 basis points (bps), while both the European Central Bank (ECB) and the U.S. Federal Reserve (the Fed) increased rates by 75 bps. For some, the rate increases are unlikely to end soon, as the Fed indicated it will continue hiking in an attempt to get U.S. inflation under control. Many emerging-market economies have extended tightening trends that they already began in mid-2021.
As the theory goes, consumers will spend less if it’s more expensive to borrow money or carry a balance on a credit card. When spending declines, demand will fall and, eventually, so will the price of everyday goods.
While raising rates should reduce inflation, that has not yet happened. Take the U.S. – the world’s largest economy – where officials have been raising rates to try and stem inflation since March yet have seen relatively little impact.
Institutional and individual investors are losing confidence. The risk-off sentiment has triggered a broad market sell-off that has the exchanges at a new bear market low for the year. Panic selling only serves to further exacerbate market volatility.
Shelter from the Storm
As investors pivot in search of safer shores, there is an often-overlooked asset class they should be considering: trade finance lending. A lower-risk asset with attractive returns, trade finance lending is a viable alternative because the value of the loans is not tied to fluctuations in traditional markets. This offers invaluable protection against long-range [stock] market volatility.
What Else is in it for Investors?
While its ability to provide a haven from market fluctuations is currently trade finance lending’s most attractive attribute, there are several other often overlooked ongoing benefits investors should consider:
– High yields, exceeding those of comparable private and public credits with similar risk
– Short-duration, adding flexibility to a portfolio
– Low default rates, even in times of economic stress
– Strong structural protections, as secured by corporate accounts payable, receivable and inventory
Expanding access to Trade Finance
Trade finance has all the components investors are seeking for their portfolios, and Triterras is revolutionizing this low-risk asset class by increasing access and liquidity. Kratos, our blockchain-enabled platform, helps investors originate, structure, service, and monitor trade finance investments. Through digitization and automation, Triterras offers an efficient and risk-mitigated approach. Investors can now play a more active role in trade finance in their effort to build a profitable portfolio of assets while also enabling future economic growth.
