Investors face a complex environment: inflation remains elevated while central banks cut rates to support softening labor markets.
These opposing forces affect different sectors in different ways, but also present an opportunity for you to diversify your portfolio, adding investments that will help shield your wealth against lower interest rates and inflation.
Let’s uncover how you can strengthen your portfolio to mitigate these risks, as well as the asset classes and equities you should consider for better diversification.
How do inflation and rate cuts impact stocks
Inflation is a phenomenon that affects everybody, from ordinary consumers to even the biggest multinational corporations.
But companies that can withstand rising costs and still deliver on shareholder value are those that hold sufficient pricing power, many of which are from industries that provide essential goods and services.
The Federal Reserve announced rate cuts on 17 September 2025, citing concerns about labour market weakness and rising downside risks to employment.
While rate cuts signal central bank concerns about growth, they simultaneously create opportunities for rate-sensitive sectors like property and technology by lowering financing costs.
Identifying which ones can weather inflation and lower interest rates are key in putting together an effective portfolio.
Meet the inflation superheroes: Essential services and pricing power
Essential goods and services remain in steady demand regardless of economic conditions, making these stocks more defensive during downturns, and popular among investors due to their “recession-proof” status.
For example, homegrown supermarket chain Sheng Siong (SGX: OV8), which provides daily consumer staples to Singaporeans at affordable prices, announced plans to open three new stores a year over the next 10 to 15 years, expanding to a total of 120 stores.
Another example is Nestlé (SWX: NESN), one of the world’s largest food conglomerates, with subsidiaries making and distributing food products to supermarket shelves everywhere.
These companies possess the ability to pass rising costs to consumers without losing demand, which protects profit margins during inflationary periods
Utilities and infrastructure are also good candidates.
Examples include Keppel Infrastructure Trust (SGX: A7RU), which owns and manages oil, gas and clean energy assets globally.
Healthcare is another sector that can handle rising costs – with a growing aging population, companies like Johnson & Johnson (NYSE: JNJ) can often pass increased R&D and manufacturing costs through to insurers and healthcare systems that need their specialized medicines.
These businesses provide non-discretionary goods and services with limited substitutes, allowing them to preserve profitability when inflation pressures other sectors.
Riding on low interest rates: Growth stocks and property plays
Low interest rates stimulate borrowing and boost economic growth.
This brings good news to companies that rely on financing to expand.
Property developers and real estate investment trusts (REIT) are at the forefront of such companies.
Likewise, property investors are waiting on interest rates to be slashed to access cheaper financing. It’s a win-win situation for both parties.
A favourite among Singapore investors is City Developments Limited (SGX: CDL), a diversified business with hotel assets, office units and shopping malls, with strong demand for its residential properties.
CDL recently divested its 50.1% stake in South Beach Development to Malaysia’s IOI Properties for S$834.2 million (the property was valued at S$2.75 billion).
CDL received proceeds of about S$834.2 million from the sale, and subsequently paid a special interim dividend of S$0.03 per share on 5 September 2025.
REITs are another type of investment that can benefit from lower interest rates.
Mapletree Logistics Trust (SGX: MLT), for instance, acquires and upgrades industrial assets in different geographical markets, riding on demand for e-commerce logistics facilities, data centres and high-tech industrial spaces.
With lower interest rates, CDL, other property developers as well as REITs are able to access cheaper financing to fund their projects over the long-term, making property plays a valuable addition to one’s portfolio.
In the same vein, growth stocks will leverage lower interest rates to tap on financing to expand, whether it’s through mergers and acquisitions, or organic growth such as breaking into new markets, increasing sales or launching new products.
Many of these growth stocks are tech stocks, such as NVIDIA (NASDAQ: NVDA), which produces AI chips and GPUs for high-performance computing, and Alphabet (NASDAQ: GOOGL), which is advancing AI technologies through its Google DeepMind divisions.
Companies like these are well-poised to benefit from future tech trends.
Blue-chip stocks as defensive plays
Legacy companies that continue to evolve and strengthen their offerings provide some stability in bearish times.
These stocks can be held over the long-term, offering capital appreciation potential and dividends.
DBS Group (SGX: D05) is an example of a Singapore blue-chip, renowned among investors due to its robust fundamentals and diversified revenue streams.
While banks typically face margin pressure in declining rate environments, DBS’s strong capital position and regional franchise have sustained investor confidence, with shares surging past S$50 for the first time in August.
The bank’s defensive earnings and solid capital base make it a core holding for stability-seeking investors.
Unilever (LON: ULVR), one of the world’s largest consumer goods companies, is known for its household names like Dove, Vaseline, Knorr and Cif.
Its strong presence in emerging markets, combined with competitive pricing on everyday goods, positions the company for continued growth.
Building a Balanced Stock Portfolio
Diversification is essential because inflation and rate dynamics affect sectors differently.
Build exposure to inflation-resistant businesses (consumer staples, utilities, healthcare) that can maintain pricing power when costs rise.
Balance these with rate-sensitive opportunities (tech growth stocks, REITs, property developers) that benefit from cheaper financing.
Add blue-chip banks for stability.
This multi-scenario approach ensures you’re positioned for whichever force dominates, with regular rebalancing to maintain your desired mix.
Get Smart: Diversification is Your Best Hedge
Here’s the challenge: inflation and rate cuts pull the economy in different directions.
Rising prices hurt purchasing power while falling interest rates stimulate growth, and different stocks respond differently to each force.
The solution isn’t picking one strategy over another, but holding both.
Combine inflation-resistant essentials like healthcare and utilities with rate-sensitive plays like property developers and tech growth stocks. Add blue-chip stability for good measure.
Diversification across sectors ensures no single shock derails your portfolio.
By spreading your bets, you give yourself the best chance of staying invested and growing wealth through whatever comes next.
If you want to retire with a constant stream of dividends, these 5 stocks might be all you need. We’ve found 5 SG stocks that have kept paying (and growing) through inflation, rate hikes, and recessions. See what they are with our latest free report for SGX dividend investors. Click here to get instant access.
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Disclosure: Jo-ann does not own any of the shares mentioned.
