With the pandemic still wreaking havoc and America torn apart after the 2020 presidential elections, Joe Biden will have his hands full with domestic problems after he takes office this week.
Biden hopes to roll out a US$1.9 trillion (HK$14.8 trillion) coronavirus rescue package, which includes dishing out $1,400 to most Americans, increasing the weekly unemployment benefit to US$400, raising the minimum wage to US$15 per hour, and extending the eviction and foreclosure moratoriums until the end of September.
There are questions over whether Congress will approve such a huge bailout and there will be a lot of controversy over the package, but analysts believe the final amount will top more than US$1 trillion, and account for 10 percent of America's GDP in 2021.
This will be the largest stimulus the United States has rolled out since the Second World War.
As a result, the market is again debating whether the enormous package will lead to hyperinflation in the United States and even around the world.
When central banks such as the Fed launched quantitative easing after the 2008 financial tsunami, many analysts feared the measures would lead to hyperinflation, but that didn't happen.
However, we should bear in mind that the proportion of stimulus against GDP post-2008 was less than half of what it is now, so the risk of inflation remains a concern.
Analysts believe the most effective hedges against inflation are not traditional assets such as gold.
Rather, they are resources like copper, lithium, nickel and cobalt as they will be in great demand, thanks to a global drive towards green energy. Electric cars, for example, use an average of 183 pounds of copper compared to conventional cars which need only 43 pounds on average.
Green polices not only promote electric cars but also clean energy. So attention needs to be paid to industries such as solar and wind power and how they will stimulate demand for copper and other resources. Wind turbines, for instance, need an average of 800 pounds of copper.
Thus, the price of copper is expected to be driven by demand and continue to rise.
So, if analysts believe that inflation could worsen and that copper is the best hedge due to policy reasons, what about traditional gold?
In the past, gold has failed to fight against inflation and its ability to hedge was worse than silver. It is largely believed that gold, at its current level, is of little use, unlike copper or silver.
Therefore, while gold might be a good hedge against US dollar weakness, it is not an ideal hedge against inflation.
The S&P 500 too will be a good hedge against inflation, as it has been performing well. So copper, lithium, cobalt and alternative energy stocks are good hedges against inflation.
Andrew Wong is chairman and CEO of Anli Securities
