An Australian asset consultancy has recommended investors not to use the resources sector as the only guard against inflation, indicating a multi-asset-class approach will be more effective in efforts to achieve this outcome.
In particular, Atchison noted a heavy reliance on commodities allocations to combat inflation exposes portfolios to higher risk through a concentrated dependence on China.
“Everyone’s reached for resources as the inflation hedge this year and the mechanism genuinely works,” Atchison investment analyst Mishan Dahia recognised.
“When a miner’s costs are largely fixed, most of a price rise drops straight to the bottom line. That’s how materials put on around 47 per cent in FY26. My issue is what it’s leaning on, the whole trade needs Chinese demand to hold up, and right now the market plainly doesn’t believe it will.”
Dahia pointed out the performance of China’s market recently shows the potential risks this strategy poses.
“Look at China’s 10-year yield as it’s fallen to about 1.75 per cent, from close to 2.8 a year ago, and bond markets don’t price yields down there when they’re expecting a recovery,” he said.
According to Dahia, a more prudent approach to counteract inflation would be to include short-dated government bonds, gold and currencies other than the US dollar in portfolio allocations.
To this end, he acknowledged bonds supply real income while waiting for interest rates to fall and gold provides inflation protection when other asset classes are underperforming.
“The part people forget is knowing when to step back. If oil rolls over because the Middle East calms down, you trim the energy exposure. If China’s numbers keep sliding, you lean harder on real yield and gold. We’re not trying to pick the one winner,” he explained.
“We’re trying to build something that doesn’t fall apart if we turn out to be wrong on any single piece.”
Further, the firm stated a single-asset hedge leaves a portfolio exposed to a sharp turn, while a three-leg structure is built to hold up over a five-to-seven-year horizon.