And now what do we do with the savings? Where to invest in a resetting market

If it's not the war, it's the rate hike.

Thomas Osborne
Thomas Osborne
12 November 2022 Saturday 08:43
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And now what do we do with the savings? Where to invest in a resetting market

If it's not the war, it's the rate hike. When not inflation, the possible crisis or doubts in China. The economic environment is experiencing so many threats and uncertainties that clouds the outlook for the private investor, who sees how in recent months everything seems to fall and makes balances with money. But the change of cycle in monetary policy and the stock market crash in some sectors opens up new opportunities.

“Finally there are instruments with more limited risk with higher returns than in the past. Assuming the appropriate risk in each profile, something that has not happened until now”, explains Ignacio Astarqui, partner of AFI. Yields are meager, yes, and they do not beat inflation, too, but it is the beginning of normalization after years of distortion due to negative rates and abundant liquidity, so portfolios can be reorganized towards something safer.

“Yields do not seem excessive, but inflation will have to go down. In the end, they will be very interesting, especially for those who aspire to retire or the very conservative”, explains Víctor Alvargonzález, director of strategy at Nextep Finance. In the short term there is a lot of uncertainty, but since the view always has to be long, five, ten years, everything adds up.

Debt and deposits wake up, the stock market threatens a rebound, real estate is launched... What is the panorama among the great alternatives? Combining them will be key to protect yourself and at the same time be on the wave.

Variable income lives a year in the red. So far the big indices fall without exception. From -17% of the S

“Beyond the current situation there will always be an excuse. There is no good or bad time to invest, in five years equity is the best option”, believes Gonzalo Recarte, director of operations at Cobas AM. Analysts are debating whether the bottom has already been reached and whether there is still a little more suffering to come. "The pessimism is excessive, as if we were in 2008," says Alvargonzález. “When it is confirmed that the peak of inflation has passed and that the rise in interest rates will not be so severe, morale can be lifted”, explains Marc Ribes, professor at Deusto Formación and co-founder of Blackbird Bank. Thus, "depending on the risk profile and the objectives, the exposure on the stock market can be increased to take advantage of the prices that this crisis is leaving", continues Ribes.

There are sectors and companies that can win. In Cobas, half of the exhibition is in energy, with attention to oil and gas transportation companies. They also see opportunities in sectors related to the elderly and something in retail, such as Renault or the British Currys. "They are interested above all in those that have competitive advantages and can transfer the increase in costs to the consumer."

Ribes recommends cyclicals, such as Coca Cola or McDonald's, because they are large, generate cash and do not need financing to grow. Also in defence, ecological transition and infrastructure. From XTB, analyst Joaquín Robles points to the US and energy, "which is behaving well despite the drop in raw materials", to the banking sector "which benefits from the rate hike and was already profitable in zero rates” and in technology companies with the ability to set prices, although they may still drop somewhat, such as Apple, Microsoft or Amazon. "You can get shares of top-tier firms at a discount price," agrees Alvargonzález.

The atypical Bundalemán at negative rates, charging for emissions, has been left behind. The market wakes up. “In recent years there had been a push to take more risk, today the panorama is more normal, it is not necessary to assume so much. There are opportunities that once again make sense in terms of risk-return”, values ​​Astorqui. It is reflected in the debt. "We see good quality and attractive types with little risk, something that did not happen years ago." For those who were in debt, the price has fallen a lot and they have been scalded: “The year is a disaster, with falls of 20%. But it is an opportunity to enter”, they raise in Nextep.

From AFI, the debt of core –central– countries such as Germany, Holland or Austria stands out, but also of the periphery, with Spain and Italy. In corporate, "in all sectors as long as it is of good credit quality." “You can get bonds with yields of 4% of the highest quality, like those in the US or corporate bonds from solvent companies,” says Alvargonzález. The most cautious smile.

The rise in interest rates and the return of the banking business to a more normalized environment pushes the remuneration of savings, one of the most conservative options. "The interest in deposits has returned," says Mónica Pina, head of the Raisin savings platform in Spain. And "since the announcement of a possible shift in the ECB's monetary policy in the spring, remunerations have been rising," she details. Until where? “It is difficult to make a prediction. But we can look at what happened in the United Kingdom, however, where rates began to rise earlier. The 1-year offer started below 1.5% and is now above 4%”, she notes.

For now the best deposits are outside. Less than a year in Italy (1.50% APR), 1 and 2 years in Latvia (2.56% and 2.87%) and 3 years in France (3.05%), according to platform data . Before investing, you must review the credit quality of the entity and confirm that they are protected by the Deposit Guarantee Fund (up to 100,000 euros). In Spain there is not so much attraction. “The big banks have been cautious, it is not clear that they need to attract more liquidity.” Thus, “the small and medium ones are the ones that have the opportunity to make a move”. For now, not much: in terms of one or two years (average of 0.59%) it is trailing Europe (1.09%). “Many expect rates to continue rising to invest. But for the wait to be profitable, very important increases are needed.” It will not beat inflation, but not investing will no longer be penalized as much.

The brick market is one of the safest returns today, although curves may come. The rise in rates makes financing for the purchase more expensive, as seen in the escalation of mortgages. That can hit the brakes on prices and divert demand to the rental market, where the great opportunity lies. With the rental of housing, gross returns of 6%-7% are aspired to, of the order of 5% in Barcelona and Madrid, reviews Ferran Font, director of studies at Pisos.com. Although the entry price is high because you have to buy a home, thanks to co-ownership platforms you can invest from 3,000 or 4,000 euros. And contracts indexed to inflation protect against increases.

In any case, there is always a key. “In real estate investment there are three fundamental criteria. Location, location and location”, explains Jesús Reglero, director of the Master in Financial Management at OBS Business School. Large cities with good demand and international appeal, above all. “A small flat in Barcelona is better than a villa in Zamora”. In areas such as Barcelona, ​​Madrid, the Balearic Islands and the Costa del Sol, demand is taken for granted by international interest. "The little offer for rent casts doubt on whether there will be falls," Font believes. Buying to reform and resell is not the most advisable. “All the material is more expensive. Very high construction prices. It may be less profitable”, argues Font.

For now, prices remain on the rise, according to the appraiser Tinsa (see chart). "They have always behaved well in times of rising inflation," says Reglero. But with the tightening of credit and the possible crisis, the evolution will slow down. "In the short term there may be falls," says Font. "At the end of 2022 and the beginning of 2023 we will see a more moderate scenario, both for rent and for purchase," she values.

Not everything is housing. In premises and offices, profitability can be 9%-10%, Reglero figure. Investment in data centers, where Spain has a good scenario, or shopping centers is also interesting. How? "Through Socimis such as Merlin, Lar or Colonial, you can have exposure to these markets," he reviews.

Gold is often a safe haven in times of turmoil. So far this year it has fallen, but has risen after touching $1,600 an ounce at the beginning of the month. “Many think it covers inflation, but it really does cover positive real rates. With the forecast of increases, it becomes a star asset”, says Ribes. At around $1,750, it has risen 8% this week. "If it starts it should go back to its highs," the 2020 $2,050.

In addition to ingots or pieces, "you can invest in mining companies in the sector, such as Barrick Gold, which has cheaper extraction costs and a higher margin."