Is it time to go public? , News / Interview Economy

As inflation continues to reduce returns on some investments, moving part of your portfolio to equities, one of the most effective asset classes in the long run, can be a tempting move.

Stock markets, which have adjusted well since the beginning of the year (-12% for CAC 40), are much more accessible than last year, but in an unstable context and at a time when many values ​​continue to drink. cup – is it really a good time to buy stocks?

We asked Frederick Rollen, Pictet Asset Management’s investment strategy advisor.

What are the reasons for the current nervousness of the markets and these corrections, sometimes violent from one session to another?

This is accompanied by three bad news: the Russian-Ukrainian conflict, inflation and the reaction of the US Federal Reserve, and the health situation in China.

First of all, the confusing conflict in Ukraine has, of course, affected market confidence, but it should be contained and limited to Ukrainian territory. And despite this situation, energy prices have significant potential for decline. Prices have risen sharply and global growth is slowing. A negative scenario – it always is – would be when Moscow suddenly stops exporting oil and gas, but this remains unlikely.

The second reason for the fall of markets is related to inflation. The Fed was wrong to believe that the rise in prices would be temporary. The result: as US growth slows, they tighten monetary policy. This is the reason for the recent fall in US bond indices.

Today, however, the market rate, 10-year US government bonds, is quite affordable: we feel we are nearing the end of the fall. As the economy slows, inflation should also slow and push markets up again. We need to be a little more patient.

Finally, a third source of concern concerns the situation in China. His policy of “zero Covid” strict restrictions has sharply reduced the activity of the country, which remains the second largest economic power in the world. And so far, the central bank and the Chinese government have not provided a serious monetary and fiscal response, as was the case in 2020. Beijing will eventually react, but the current situation continues to create volatility in financial markets.

Galloping inflation may encourage some savers to take more risks, for example by turning to stock markets, whose indices have adjusted sharply since the beginning of the year. For these profiles of investors with a low risk appetite, is it worth taking a step now?

European markets are really starting to reach an interesting level with rather low ratings. The economic outlook has certainly been revised downwards, but growth forecasts remain, which gives us reason to believe that we have not entered a long cycle of decline.

Under these conditions, yes, the moment may seem right to launch and invest in European stocks in the long run. However, we recommend waiting a little longer, as the level may drop in the coming days or weeks.

In terms of asset allocation, why do you now prefer European markets?

European stocks are the most attractive because they are much lower than US stocks, they are quite cheap compared to bonds, and inflation risk in Europe is lower than in the US.

In what areas of activity do you find it interesting to invest today with some caution?

Our caution is reflected in the advantage of defense sectors that are not very sensitive to economic cycles, such as health care.

On the issue of choosing between growth and value stocks, after the end of long-term growth, we recommend returning to certain well-chosen growth sectors, such as those that have emerged from the Russian-modern Ukrainian.

We single out two of them: renewable energy sources, as they are also driven by productivity gains, climate change, and the imperative of energy independence that has arisen with the Russian conflict. And the security sector, in particular computer security, is still a little more aware that cyberspace is a potential place of war in this context of geopolitical instability.

Other growth stocks that have corrected well since the beginning of the year, such as the luxury sector, still seem interesting to us. Although they have been sanctioned for their high propensity to China, we believe they still have significant growth potential.