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How The Cyprus Banking Crisis Could Affect You

inflationCyprus, which is  the latest Eurozone country to request a bailout, may be 5,000 miles away from Singapore, but its problem could turn into our problem.

The Mediterranean island country, which is situated 700 miles to the east of Greece, has been forced to go cap in hand to the European Union and the International Monetary Fund for a 10 billion euro bailout to save its beleaguered banks. It has been reported that Europe’s paymaster, Germany, has insisted that Cypriot bank customers should contribute something towards the bailout.

So, the deal on the table, which has yet to be approved by the Cypriot government, could see bank customers lose up to 10% of their deposit in the form of a one-off levy. This has not only shaken the confidence of Cypriots but other Europeans too.

The feeling is that if the government of Cyprus can confiscate money belonging to its own people, then what is to stop the governments of Portugal, Ireland, Greece and Spain from doing the same. It has always been felt that European bank customers would be protected at all costs – but, it seems, not anymore.

However, the Cyprus issue has underlined concerns that the Europe’s financial problems are from being resolved. This would suggest that the days of easy money are far from over too. If anything, historically-low interest rates and lots of money sloshing around global economies are likely to persist for some time.

For me, this spells inflation. When lots of money start chasing a limited supply of goods and services, then that could be a recipe for rising prices.

As investors, we should not be complacent about inflation. If anything, we should put in place an inflation-beating strategy which means investing in inflation-beating assets. I am looking for companies with pricing power, which is the ability to raise prices without causing a drop in sales.

One example could be cable TV operator StarHub (SGX: CC3). Despite the slow growth of both local and global economies, the triple-play telecom operator registered its eighth year of growth last year. Another could be private healthcare provider Raffles Medical Group (SGX: R01). The operating margin of the hospital and clinic operator has been robust despite the impact of rising prices.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.