Deflation is the situation where you need to find the "market's gold"! What to invest in for the highest profit?

Before knowing what to invest in, you must understand “Deflation”

Deflation is not a new phenomenon, but it is a situation many people are currently facing. Often, we hear more about inflation (inflation), but deflation is actually a greater enemy.

Simply put: Deflation is a condition where the prices of goods and services decrease continuously. Negative inflation rate means that the purchasing power of cash increases. With the same amount of money, you can buy more goods.

But that sounds like a good thing, right? Not at all.

Why is deflation a threat to the economy?

When prices fall, it does not mean all businesses benefit. In reality, deflation is a warning sign that:

1. Demand shrinks
People have less income, leading to tighter spending. Entrepreneurs see fewer customers and lower their prices in hopes of some recovery, but the situation worsens.

2. The terrifying downward spiral (Deflationary Spiral)
Prices fall → Consumers wait for lower prices → Demand drops further → Businesses cut jobs → Unemployment rises → Income decreases again → Prices fall even more

This process causes the economy to become sluggish.

3. Increasing unemployment
When businesses cannot find ways to survive, they reduce their workforce. During the US “The Great Depression” (1929-1932), unemployment soared to 23%, with some countries reaching 33%.

Overview: What do economic indicators tell us?

In April 2020, Thailand’s overall Consumer Price Index (Headline CPI) decreased by -2.99% (YoY), marking the most significant contraction in over 10 years.

Although Thailand has not officially entered deflation yet, warning signs are already present.

Where does deflation come from? The real causes

Deflation does not happen by chance; several factors combine:

Supply Side (Supply Side)

• New technologies reduce production costs
• Maintaining employee productivity (productivity)
• Increased efficiency but prices must decrease

Demand Side (Demand Side)

• Rising household debt
• Reduced net income
• Tightening credit restrictions
• Fear causes consumers to delay purchases

Faulty government policies

• Raising interest rates too high
• Insufficient money circulation
• Heavy taxation leaving less money for people to spend

All these factors led Thailand to experience negative inflation during the COVID-19 period.

Who benefits, who loses?

Beneficiaries:

• Salaried workers (fixed salary)
• Creditors
• Cash holders

Losers:

• Merchants
• Shareholders
• Debtors
• Profit earners

How will the government fix deflation?

When deflation occurs, the government and central bank must intervene:

1. Lower interest rates to encourage borrowing and investment
2. Increase liquidity by purchasing bonds and assets
3. Reduce taxes to put more money into people’s hands
4. Lower water and electricity bills to ease household expenses
5. Support public and private investment to create jobs

What to invest in now for profit?

In a deflationary environment, investors need to change strategies from traditional profit expectations.

1. Bonds - A Safe Choice

When the central bank lowers interest rates, the prices of previously purchased bonds will rise. Investors holding government or high-potential corporate bonds will benefit.

Caution: Choose highly credible bonds and study repayment terms carefully.

2. Stocks - Choose Wisely

Not all stocks will decline. Companies with strong fundamentals can still profit even in a contracting market.

Invest in essential businesses:

• Food and beverages (People must eat even in hardship)
• Utilities
• Companies with risk management strategies

Strategies:

• Diversify buying and selling to avoid buying at high prices
• Set Stop Loss to limit losses
• Consider Put Derivatives (Put DW) to hedge against downturns

3. Gold - An Everlasting Asset

During deflation, gold prices often fall due to decreased demand, but this is an opportunity. You can buy gold at lower prices and hold until the economy recovers.

How to trade gold CFDs:

• Open an account with a trusted CFD broker
• Download the platform
• Speculate on both rising and falling prices without owning physical gold

4. Real Estate - Long-term Investment

In deflation, urgent property sellers must lower prices. This presents a good opportunity to buy at attractive prices.

Caution:

• Choose locations with good prospects
• Real estate investment requires patience, wait for prices to rebound

5. Cash - Not a Long-term Solution

Holding cash during deflation increases its value, but this is not an investment—it’s a way to preserve value. Prepare to buy when prices drop.

The formula to cope with deflation - No other way

1. Divide your funds: Keep some cash, invest some
2. Study thoroughly: Don’t chase quick profits; analyze economic trends deeply
3. Set Stop Loss: Limit losses to avoid total loss
4. Diversify: Don’t put all your money in one place
5. Wait for the right moment: Deflation is a short-term cycle; it will end. Be ready for recovery.

Summary: Deflation is a warning, not an endpoint

Deflation is an economic cycle. It comes and goes, but during its presence, well-prepared investors can choose the right investments and profit.

Most importantly: Just because there is deflation, it doesn’t mean there are no ways to make money. You just need to find the “golden opportunity” in the market.