What to invest in in these uncertain times

Inflation does not stop, and the central banks tighten the nuts with a rise in rates.

Thomas Osborne
Thomas Osborne
10 March 2023 Friday 04:27
66 Reads
What to invest in in these uncertain times

Inflation does not stop, and the central banks tighten the nuts with a rise in rates. A situation that translates into a punishment for the stock markets and an improvement in fixed income, but that within a week could turn around if the data is good and it seems that rates no longer need to be raised so much. It is a constant that is lived these days, with ups and downs and uncertainty. Context that makes it difficult to assemble the portfolio when investing.

“Today it is more difficult than ever to make forecasts. Not even the central banks know what they are going to do”, says Juan José del Valle, an analyst at Activotrade. Between risking more in the stock market and the refuge of bonds, a balance must be found between all the alternatives, according to the profile of each one. “Being very aggressive and having an excessively conservative portfolio makes you get bored and stop investing. Being very conservative and having a portfolio with a lot of risk means that in difficult market moments I sell everything because I can't stand seeing money lose. In both cases, the error arises when building the portfolio. It must always be tailored, fully adapted to maintain calm in moments of crisis and euphoria”, sums up Miguel Camiña, CEO of Micappital. Of course, "right now, the conservative is forced to assume some risk if he wants to match inflation and try to beat it."

For a "balanced" investor, Ignacio Viayna, director of Creand Wealth Management in Catalonia and the Balearic Islands, proposes as a general approach having 45% of the portfolio in equities, 30% in alternatives that provide stable acyclic returns (alternative investment funds , debt, venture capital in unlisted companies), 15% in fixed income and 10% in liquidity. But he acknowledges that "after the current rises, it is important to reduce exposure to the stock market to re-enter at better prices." And diversify a lot, due to the low visibility and so much change.

Although not everyone is a fan of formulas, there is a bit more consensus on deadlines. "With diversification and a medium-long-term look, performance will surely be achieved," they point out in Activotrade. “In a market as volatile as the one we live in, investing in the short term has a much higher risk. If you take advantage of the situation to invest in the long term, you have a good chance of being successful”, Camiña completes.

Stocks have risen, but are now at a turning point. The rebound is technical after the 2022 corrections, “it is very difficult to determine how long it will last. The risks of a drop in current levels are high ”, they expose in Creand. And it is that prices are holding up higher than expected, which can pay for rate hikes. Why does that hurt the bags? Making financing difficult has a drag effect: less activity, GDP, employment... Purchasing power and company margins fall, reports Del Valle. With this uncertainty, it is time to be "conservative and cautious", with a focus on sectors such as electricity (such as Iberdrola), gas companies, insurers (such as Mapfre) and banking, he explains. By momentum and by the payment of dividends.

While it is true that less risky options, such as debt and deposits, have been revived, they do not come close to beating inflation. "With the 3% offered by Treasury bills, we must bear in mind that we also lose money," says Viayna. In addition, it is time to be selective, because fixed income can also be punished with the rise in rates. The "high credit quality" wins integers, with equal distribution between sovereign and corporate. Away from the furor in Spain, Del Valle recommends short-term fixed income from the US and Germany, up to two years. “Even if the returns over inflation are low, it is return without risk that is too high.”

In the debate about investing on this side of the Atlantic or the other, there is division. At Creand they prefer more exposure to Europe in equities. The Old Continent is pending the war, the prices or the supply crisis. "You can have a greater momentum if you manage to solve them," they trust Micappital. If they persist, the fall can be more aggressive, however. "A priori we can be calmer having more weight in the US," he closes. Del Valle points out that a weaker dollar will boost the American stock market and "in 2023 as a whole it will do better." He also bets on broadening his sights and looking at Asian equities. Viayna agrees: the reopening of China is an opportunity.