The moment of truth came. Investors are starting to prepare their portfolios for the latter part of the year. And they do it with the certainty that September is full of unknowns, with central banks struggling for months between raising interest rates to combat inflation and the risk that such monetary policy could plunge their major economies into recession. “The risk of them being wrong is not negligible,” says Ramón Forcada, Bankinter’s director of analytics. His vision aligns with that of the consensus, especially as this Friday both Federal Reserve President Jerome Powell and European Central Bank President Christine Lagarde made it clear that they are prepared to further consolidate interest rates if necessary to raise inflation above the environmental target of 2%.
Against this backdrop, it is clear to the market that whether the cycle of hikes ends or not, interest rates will remain high for a long time to come. And all at a time when stock markets may already have outperformed this year, with gains of over 13% in the case of the Spaniards, despite the 3% cumulative fall in August from the Ibex-35. The big question now is: is there still an uptrend? Experts believe that little will change before the end of the year, but advise taking advantage of potential profit-taking in times of crisis to increase exposure to the asset class.
“Our industry preferences remain in the technology space—in particular, semiconductors and cybersecurity, healthcare technology, luxury, and energy transition,” indicate Bankinter, with Iberdrola, Enel, or Acciona Energa among their favorites in this last sector. The company believes the potential for Spanish selectivity is close to double digits at 12%, looking ahead to 2024. “We bet on quality companies that can generate profits in an environment of weak growth and high inflation. Given that funding costs will remain high,” we prefer those with low levels of debt”, adds José Miguel Maté, CEO of Tressis.
Luxury and technology also creep into the company’s favorites, under a mantra that’s already a tradition in expert forecasts: Oh, be pickier than ever given the high ratings some of these companies have already achieved. In this sense, Forcada reminds us that the business results will be “crucial for the recovery of the stock markets after the summer”.
According to the Bank, one of the sectors that has benefited the most from the rise in interest rates—d one of the best-performing this year despite the US regional business crisis in March—parts are cautious, especially in light of the sensible fears due to tightening credit restrictions and the potential, albeit controlled, recovery in crime.
Nobody dares out new horrors. Especially after 2022, when the most important lesson was that even the most accurate forecasts can remain on paper in the face of completely uncontrollable events such as the war in Ukraine, uncontrolled inflation, or the demise of giants like Credit Suisse,
Ignacio MuozAlonso, an analyst at Inversis, agrees that key risks to the market include tightening financial conditions and banking sector vulnerabilities, not to mention geopolitical tensions in Ukraine, China, and Taiwan. Not to mention underlying inflation, the great enemy for central banks to defeat. In this scenario, the company continues to touch income securities, particularly short-dated government bonds.
It was precisely this more conservative asset class that had become the winning horse for practically all managers in 2023. Especially after a disastrous balance sheet that left those who took refuge in debt from volatility in the stock markets heavy losses. After a long period of zero returns – and even negative ones – investors returned in the early months of the year to win on this bet, particularly by investing in government bonds. This is reflected in the excitement over government bonds, which have become a substitute for bank deposits, with yields over 3.5% on maturities of 12 months and under. Despite everything, experts advise Being very picky also in this segment, which took an unexpected turn in August and led to losses for sovereign debt funds in the eurozone. The advice is widely shared by analyst consensus: the key is to continue betting on these shorter maturities as there is still uncertainty about the three factors that will drive the market’s trajectory over the coming months: inflation, interest rates, and risk the recession.
