## Deflation: What Investors Need to Know During This Bear Market

When the prices of goods and services continuously decline, your currency's value increases—this is **deflation**, the opposite of general inflation. It sounds good for your wallet, but the reality is much more complex because deflation often accompanies economic crises and debt markets. Honestly, what is deflation? Why does it happen? And what should investors do to earn returns during this downturn?

### Deflation is the "decrease" of the entire system

**Deflation** is a situation where the overall price level drops. This results from insufficient money circulation in the economy or a contraction in demand for goods and services. When it occurs, the value of the currency increases, and purchasing power seems to rise. But in reality, businesses lose revenue, unemployment rises, and the economic system becomes a downward spiral.

A clear example is during a recession: many people start saving money, reduce consumption, businesses see fewer buyers, and cut production. As production decreases, layoffs occur, leading to less income and lower prices to attract buyers. But the more prices fall, the lower profits become, prompting further layoffs—creating a deepening "deflation" cycle.

### What causes deflation? Key reasons to understand

**Demand-side factors decrease**
Demand drops sharply as people save rather than spend. This can be due to rising unemployment or increased household debt. Financial institutions tighten lending standards.

**Supply-side oversupply**
New technologies reduce production costs, increasing output but lowering prices. A clear example is the COVID-19 crisis: when markets stagnate, central banks cut interest rates to inject money into the system.

**Faulty monetary policies**
Raising interest rates excessively or heavy taxation can lead to insufficient cash in people's hands.

### Deflation presents "opportunities" for investors

Most see deflation as bad because businesses incur losses and stocks decline. However, this is the moment when "smart investors" seize the opportunity to buy assets at low prices.

**Debt instruments: interest rates tend to fall**
During deflation, central banks often cut interest rates to stimulate the economy. Bonds or debentures purchased ( will increase in value because the interest received exceeds the market rate at that time.

**Consumer staples stocks: indispensable companies**
Food, beverage, or utility companies ) water, electricity ( still generate income even in a downturn. This stabilizes stock prices, and as the economy recovers, stock prices tend to rise quickly.

**Real estate: "targeted" pricing**
In a sluggish economy, those facing deflation may urgently sell real estate. Investors with cash can take this chance to buy land or properties at 20-30% below normal prices for speculation.

**Gold: a safe haven for fearful investors**
In a bear market, gold prices rise, contrary to other assets. This is the best "hedge." During deflation, gold prices often plunge; buy and hold, then sell for profit when the market recovers.

) Investors must build safeguards for themselves

**Strategy 1: Accumulate cash**
During deflation, money gains value. No need to rush into investments. Keep 30-40% of your portfolio in cash to buy at the right moments.

**Strategy 2: Gradual buying and selling ###Dollar Cost Averaging(**
Avoid investing all at once. Spread purchases over months. When the market continues to decline, you get a better average price.

**Strategy 3: Trade CFDs to profit from downturns**
Don’t want to wait for the economy to recover? Trade CFDs to "short" the market. If stocks keep falling, you can still profit. Platforms like Mitrade require only a minimum deposit of 50 USD plus a 100 USD new trader bonus.

**Strategy 4: Focus on strong businesses, not the entire market**
Even if the market declines, well-managed companies can still profit. These stocks tend to rebound quickly. Study annual reports to see if the company is profitable.

) Can Thailand experience deflation?

In April 2020, Thailand’s inflation was -2.99% ###YoY(, the lowest in 10 years. But Thailand did not meet the definition of "deflation" because it failed 3 out of 4 criteria. Currently, in 2021, inflation is projected to rebound to 0.9%. However, risks remain—if the global economy contracts further, Thailand might not escape.

) Summary: Deflation is not the end, but the beginning for investors

Those who save early and wait for the right moment are the ones who profit when the economy recovers. Those who continue investing but choose the right assets (debt instruments, consumer goods, gold ) can still make gains.

Finally, investors brave enough to "short sell" via CFD trading have the chance to profit in both rising and falling markets—no need to wait for a market rebound.

**Deflation** is not necessarily bad; it just requires proper management and strategic decision-making.