With the aim of identifying what the investment prospects are for this year, La Vanguardia convened this week, in collaboration with BBVA, a session to offer reliable clues about the progress of the economy and the opportunities offered by the market. The event, which was moderated by Elisenda Vallejo, editor-in-chief of Economy at La Vanguardia, was attended by Álvaro Manteca, head of private banking investment strategies at BBVA in Spain; Patricia de Arriaga Rodríguez, Deputy Managing Director at Pictet Asset Management, and Sergio Carrasco, Director of Private Banking and Wealth at BBVA in Catalonia.
José Ballester, territorial director of BBVA in Catalonia, welcomed the public that filled the space set up for the occasion at the main headquarters of the bank in Barcelona. The manager highlighted the complexity of the current macroeconomic context and the war in Ukraine, which, regardless of the effects in the economic sphere, is causing many deaths and leaving "an uncertain future for an entire generation".
When it comes to providing certainty to investors, José Ballester highlighted the importance of having "the advice of specialists, both internal and external to BBVA, so that each one of us can make our decisions with the best possible information".
Álvaro Manteca was in charge of initiating the interventions of the experts summarizing at the request of the moderator what 2022 was like for investors. The BBVA manager explained that "it was an extremely complex year, not only because of all the geopolitical events, but also because of the inflation that came so abruptly and that changed the entire economic scenario that had accompanied us in recent years." The central banks, which had practically not raised interest rates since the great financial recession, “had to do it in an accelerated manner”.
Faced with this reality, Manteca recalled that "in 2022 we were very cautious, how could it be otherwise, but this year we have a little more optimism." This change in position is due to "that we are already beginning to see the light at the end of the tunnel". The expert stressed that "we are going to have a year in which inflation, with ups and downs, is going to go down." Álvaro Manteca assured that "central banks, probably in the first half of the year, will take a breather to assess the cumulative effects of the rate hikes they have been carrying out in recent months." Consequently, "we have a more constructive position for 2023".
The head of private banking investment strategies at BBVA in Spain indicated that "only a few weeks ago we were expecting a scenario of full economic stagnation." The forecasts for the euro area pointed to a 0.1% decline in the economy, "but the situation has changed and in the coming days BBVA Research is going to raise growth expectations for Spain, for the euro area as a whole and for the US USA in 2023”.
The analyst pointed out that behind this improvement in forecasts there are two circumstances: "The drop in energy prices, especially natural gas, which went from an average of 235 euros per MWh in August to wholesale prices below 50 euros per MWh. This allows a decrease in inflation rates and an improvement in the European trade balance”. These factors, "along with the reopening of China, have created a more favorable risk environment for us." All in all, Manteca considered that "growth is going to be low, worse than what we had in year 22."
Sergio Carrasco, director of private banking and assets at BBVA in Catalonia, compared the situation experienced in the markets last year with those of the technology crisis of the period 2000-01 and the financial crisis of 2008, "with all the indicators of variable income and also those of fixed income in negative returns, even in double digits”. Faced with a similar scenario, Carrasco explained that BBVA's private banking opted to "be very close to the client, being very disciplined, especially in the temporary investment scenario, and another key factor is diversification."
The investment expert assured that “a well-constructed portfolio must be highly diversified, since that allows you to better cushion market declines. Carrasco highlighted that "clients who calmly faced the outbreak of the war in Ukraine and maintained positions were able to recover results in the last part of 2022 and in these first months of the year."
The key element to be able to assess what 2023 will be like is, without a doubt, inflation. "The economic scenario will depend on how this indicator evolves," said Álvaro Manteca. The head of investment strategies was confident that "inflation is going to drop sharply, but it is not going to be a linear process." The manager confessed that for now "it is being more persistent than we would like and it will take longer than desirable to normalize, which may mean that central banks will have to raise interest rates additionally."
Álvaro Manteca recalled that "three months ago we were waiting big enough to guarantee that inflation will gradually return to normal."
When recommending investments for this year, Patricia de Arriaga Rodríguez, deputy general manager at Pictet Asset Management, opted for "opening the door to two asset classes that were forgotten, such as fixed income and short-term remuneration". . The expert explained that "short-term rates, through intervention policies, are rising, and that places a risk-free interest rate at levels of 1% or 2%, which is something we haven't had since years ago and that produces a certain comfort”. De Arriaga assured that "the great pain last year in the portfolios was more due to fixed income than variable income."
In the current context, with parts of the fixed income that are now with an interesting remuneration, "we would favor quality short-term credit and then we think that there are opportunities in the technology sector that deserve to be in the equity portfolios", considered the Pictet Asset Management expert.
For his part, Sergio Carrasco referred to the impact of megatrends. The BBVA expert said that "these are very interesting investments that will mark the future in the coming years, and industries that are aligned with themes such as climate change, sustainability, circular economy, recycling or longevity are very attractive." In this sense, Carrasco also referred to changes in consumer habits as a source of opportunities. All in all, the manager expressed his conviction that the engine of all these investment opportunities is based "on the technological disruption that we are experiencing with key sectors and that they can be a good complement to our most core portfolio."
Within the technological field, De Arriaga highlighted the rise of the cyber protection ecosystem. The expert explained that the expenses of the companies in this matter grow around 10% per year. “Cybersecurity goes beyond data hijacking, since it has a much broader field that affects critical infrastructures in cities,” she clarified. In the expert's opinion, "you don't play with security, because companies can risk reputational risk, and these budgets, regardless of the economic cycle, will continue to rise, because we are in a world of digital transactions" . As a vehicle for investment in cybersecurity, which is a segment of companies that is mostly unlisted and highly fragmented, "we recommend products that consider security in a broader concept, which also includes physical and service security."
In the final part of the session, Álvaro Manteca insisted that "in 2023 it will be easier to obtain profitability because we can capture returns that were unthinkable a year ago, thanks to the rise in interest rates." For the BBVA analyst, "both in fixed income and variable income there are opportunities, but it is necessary to be patient, diversify the portfolio and set an investment horizon, because there will be volatility."
Álvaro Manteca shared his expectations beyond this year and assured "that until 2024 we will move in a scenario of high rates and already in the new year they will begin to fall, unless we have an economic recession beforehand, which is something we do not expect" . For this expert, the most likely thing is "a soft landing for the economy".
Regarding the rise of Treasury bills, Sergio Carrasco recommended to more conservative clients that they can look for "other more efficient vehicles, such as diversified fixed-income funds that include bonds, state public debt and take a longer-term position." On the other hand, the director of BBVA in Catalonia highlighted the importance of financial assets that meet environmental, social and governance (ESG) criteria as a response to the population's own awareness and about which there is a regulation that orders the market. Carrasco stated that "companies that follow these criteria will surely last longer, and it will be more profitable to invest in them."
Along the same lines, De Arriaga expressed his conviction that "all companies that are capable of having a better environmental footprint are going to attract the interest of investors." For the expert, "the transformation towards a more responsible capitalism is a trend that is starting now, but it is unstoppable."
