Stocks Are Not an Inflation Hedge — And What That Means for Your Property Strategy

Inflation is back. The energy shock has rippled through the global economy, and survey data from Bank of America's Fund Manager Survey shows the net percentage of respondents expecting higher inflation is at its highest level since the pandemic. The same survey recorded a record monthly jump in equity allocation among fund managers — the largest in 25 years. Investors are buying equities as an inflation hedge. They are likely making a mistake.

The argument for equities as an inflation hedge is intuitive: stocks are claims on real productive assets — factories, intellectual property, land. Corporate revenues should rise with prices. But this logic, as Bloomberg macro strategist Simon White argues, neglects one crucial feature: duration. Every financial asset has a duration — the average time taken to receive future cash flows, weighted by present value. Stocks have the highest duration of any asset class. They are effectively a call option on the solvency of a company in perpetuity, with cash flows expected far into the future.

The problem is that high duration assets are the most sensitive to changes in the discount rate. When inflation rises, investors demand higher returns to compensate — which means they apply a higher discount rate to future earnings, compressing valuations today. A bond with a finite maturity can be renegotiated at a new coupon rate when it matures. A stock cannot. The return on equity is relatively fixed over the long term and cannot be renegotiated the way a bond coupon can. When inflation is high, stocks become what White calls a "shunned asset" — and history backs this up. In the Great Inflation of the 1970s, stocks were the worst-performing major asset class. Nobody wanted duration when inflation was rampant.

Why property is structurally different

Physical property sits in a fundamentally different position in an inflationary environment. Unlike equities, real estate has a short duration in the sense that matters for inflation protection: rental income can be renegotiated at each lease renewal, typically annually or at the end of a tenancy. Rising construction costs and land prices create a genuine floor under asset values — you cannot easily build a replacement at the old price. And unlike stocks, which can be repriced almost instantly by the market, property transactions are illiquid and slow, which means the price discovery process absorbs inflation more gradually and without the violent drawdowns that equity markets experience.

Singapore's property market adds another layer to this. Land is genuinely scarce, the government controls supply through the GLS programme, and household formation continues to underpin demand. In an environment where inflation erodes the purchasing power of cash, owning a physical asset that generates rental income — and can be sold at a price anchored to replacement cost — is a more defensible position than holding equities in sectors laden with long-duration growth assumptions.

The risk to watch for property investors

This is not an argument that property is risk-free in an inflationary environment. Rising inflation typically accompanies rising interest rates, which increases mortgage costs and squeezes affordability. The effect on highly leveraged buyers is real. But the distinction matters: leverage risk is a financing risk, not a fundamental asset risk. An unencumbered property, or one with manageable debt, holds its real value far better through an inflationary cycle than equities facing re-rating pressure.

The tech-heavy equity market is particularly exposed. Tech carries the largest duration of any sector — huge expected cash flows priced far into the future, dependent on low discount rates remaining in place. When inflation and rate expectations shift, the repricing can be severe, as investors saw in 2022. The portfolio that felt diversified when rates were near zero may be far more correlated in a rising-rate, rising-inflation world than it appeared.