Markets are going through a difficult period. And the worst may be yet to come. Investors remain attentive to the actions of the central bank. “We’re stuck between stone and anvil,” said Kevin Tozet, a member of Carmignac’s asset management investment committee. “Inflation needs to be brought under control so that stock and bond markets can regain some form of stability. At the same time, inflation will be controlled by tightening financial conditions, which does not portend financial markets, ”he explains.
Rising interest rates by central banks could lead to an economic recession. That was acknowledged by the chairman of the US Federal Reserve, Jerome Powell, on June 22 during a congressional hearing. The war in Ukraine has only intensified the surge in prices in recent months, especially on raw materials. And stock prices have generally fallen in the stock market. Thus, CAC 40, the flagship index of the Paris market, has lost more than 15% since early January. And across the Atlantic, the decline is even more noticeable for the S&P 500 (-18%), which unites the 500 largest American companies.
Stock market: stocks and sectors that are preferred in the long run
In this context, it is important to adapt your portfolio of financial securities to minimize the risk of losses, reduce your propensity for high price volatility and possibly hope to gain capital gains.
Among the areas that should be a priority is the health sector. Pharmaceutical stocks are usually considered defensive, ie their financial performance has little effect on the development of the economic situation. It is clear that households are cutting other less important costs before stopping treatment.
In addition, the pharmaceutical sector suffers slightly less from profit pressures than other so-called “protective” values, such as agri-food products and mass distribution. Among these companies we find, for example, the French Sanofi, the American Pfizer, the Danish Novo Nordisk or the Swiss Roche and Novartis.
Health insurance companies in the United States “should also work well,” says Kevin Tozet. Here we can cite the groups Anthem, Cigna and Humana, for example.
The main groups of consumption
Other protective stocks are mainstream consumer companies that sell basic goods and services, such as agri-food groups (Nestlé, Danone, etc.). Or even large distribution companies such as Carrefour in France. These companies may still suffer from inflation and falling demand if wages are not seriously revised upwards.
“In times of inflation, we buy more of what we need than what we want,” says Kevin Tozet. Therefore, the period, which is also characterized by a slowdown in the economy, is not favorable for so-called “cyclical” stocks, such as car manufacturers, whose activities are more sensitive to the economic situation.
Conversely, a company like Colgate-Palmolive, which specializes in hygiene and cleaning products, looks more active. Because, recession or not, you will continue to brush your teeth, bathe and clean your house.
>> Buy and sell your investments (exchanges, cryptocurrencies, gold, etc.) at the right time thanks to Momentum, Capital’s technical analysis newsletter. And right now, using the CAPITAL30J promo code, take advantage of a free trial month.
A little luxury and technology
Although stocks are not considered protective, there are some “quality” stocks that are worthy of inclusion in your portfolio. This applies to companies in the luxury sector, such as Hermès or LVMH. “These companies can maintain their margins because the wealthiest consumers are less sensitive to price increases,” says Kevin Tozet. In addition, China, an important luxury market, is rebuilding its economy on the basis of very severe restrictions in large cities such as Shanghai.
Although they have been hit hard by falling prices and are sensitive to economic cycles, large stocks of technology also remain attractive. “It is in the technology sector that we still find the companies with the strongest growth rates,” fund manager Werner Wuits of private bank Dierick Lace told L’Echo. On the other hand, we need to be more selective than before and prefer profitable companies such as Microsoft and Alphabet.
In the technology industry, there are also groups that specialize in cybersecurity, such as Palo Alto Networks in California or Wallix in France, which have a good chance of doing well in the stock market in the long run. Because computer attacks, the victims of which are companies and state administrations, are multiplying. And the war between Russia and Ukraine only exacerbated this phenomenon.
Renewable energy sources
Another promising sector in the long run: renewable energy sources and energy transition companies in general, such as the American TopBuild, which specializes in insulation materials for construction. In France, promising companies far from CAC 40: Lhyfe, recently listed on the stock market, and McPhy, both specialize in hydrogen; Albioma, an expert in solar photovoltaics and biomass; or Neoen, which specializes in solar and wind power. “Solar energy is much more competitive than before, and its production cost has dropped,” said Frederick Rollin, Pictet AM’s investment strategy adviser.
The war in Ukraine also reminded us of the enormous challenge of energy independence for France and Europe. Therefore, investors can also turn to large companies in the sector, such as Denmark’s Orsted or even TotalEnergies, which is increasingly investing in renewable energy, although the French oil company remains one of the world leaders in fossil fuels.
Euro: The ECB’s policy will be crucial to support the dollar
Bonds of some developing countries
In addition to stocks, you can bet on certain debt securities issued by developing countries. For example, the Carmignac Patrimoine fund owns 3% of its portfolio. “We prefer countries that have significant raw material resources. In addition to Brazil and Mexico and their oil reserves, certain areas store energy-related materials, such as Chile, the world’s leading copper producer, ”said Kevin Tozet. However, raw materials continue to benefit from high prices.
In addition, after the Covid-19 crisis and then the war in Ukraine, supply chains were damaged. “We are seeing a convergence of industries that makes the sovereign bonds of Eastern European countries, such as Romania, attractive,” explains Kevin Tozet.
A little Chinese stock
China’s port congestion and tight restrictions in the country have been particularly damaging to an increasingly globalized economy. Now Beijing is loosening the noose and seems to be moving towards more favorable regulation for the technology sector and real estate. Moreover, fiscal stimulus should support the country’s economy.
That’s why Carmignac considers it appropriate to gain some influence over Chinese stocks, such as e-commerce company JD.com, which is listed on Nasdaq, energy-related companies such as Sungrow or clothing brand Anta Sports, while Beijing wants to encourage its population to be more physically active.
Don’t forget about gold
In times of crisis, gold remains a safe haven par excellence, away from financial markets. Thus, yellow metal is a good way to diversify your portfolio. If the price of an ounce of gold fell from a peak in March 2022, after Russia’s invasion of Ukraine, the asset has traditionally withstood the crisis and loss of confidence.
Bitcoin: the main factors influencing its price