The outbreak of war in Ukraine, the high inflation derived from the energy crisis and the aggressive rise in interest rates undertaken by the central banks to restore stability to prices have thrown down the forecasts of the analysis firms for the whole of the year. The falls have been widespread both in the stock markets and in the debt market. Very few assets have managed to dodge the red. With just two weeks to go until the end of the year, managers are preparing their portfolios for a year in which recession fears, monetary normalization and downward revision of corporate earnings will set the markets’ course .
After many years in which the financial sector has been relegated to second or third place, the end of the era of cheap money leads managers to increase their appetite for banking. Higher revenue expectations in the heat of rate hikes will help banks’ margins to dig out of the hole, a trend already reflected in third-quarter results. Along with banks, energy companies and tourism companies arouse the interest of managers. As armor once morest shocks, experts choose companies with a more defensive profile, such as pharmaceuticals or luxury companies, with a great capacity to transfer rising costs to their prices.
Joaquín Ferrer, product manager for European equities at Mutuactivos, advises prudence in any case with regard to the Stock Markets given the risk that a reduction in disposable income might lead to a deterioration in consumption. This might lead to a recession. The ECB already pointed this week to a foreseeable contraction this quarter and the following. However, like Christine Lagarde, Ferrer believes that the adjustment will be short-lived. “We expect long-term rate stabilization,” she stresses.
Diego Jiménez Albarracín, head of equities at the Deutsche Bank investment center, is optimistic and points out that, unlike previous recessions, private consumption might be supported by the high levels of savings accumulated during the pandemic. The expert believes that high energy prices should continue to boost profits for energy companies while financial companies will benefit from the new interest rate environment. “Although the aggregate spreads of the indices have probably peaked, we don’t think they are going to collapse,” he predicts.
With an eye on the coming months, Albarracín believes that European equities might outperform those of the US. The expert believes that the recent valuation discounts in this region have been disproportionately high. Extensive fiscal programs and high savings levels should boost private consumption. To this Albarracín adds that if the end of the zero Covid policy is confirmed, the Chinese economy will recover part of the muscle it lost and this will be an incentive for many European companies.
The Renta 4 analysis department It is especially positive with the Spanish stock market and sets 10,974 points as its target price. That is, it gives you a potential of 32%. The reasons that explain this optimism are very diverse. The entity’s experts expect the Spanish economy to show greater resistance than the European economy due to its less dependence on Russian gas. In a context of rising interest rates, banking, one of the sectors with the most weight, will serve as the engine for the selective as a whole while, in the event of a recession, the defensive nature of many of the listed companies, such as utilities, telecommunications or the infrastructures, will help to withstand the shocks.
Despite these prospects, experts do believe that volatility will increase and might complicate the behavior of the Stock Market in the first months of the year. In the medium term and as inflation begins to subside globally and central banks pause their rate hike process, Juan José Fernández-Figares, Link Securities’ director of analysis, expects the stock market to recover some of the lost ground. However, the expert considers that the year will be complex in general terms. Stock selection is becoming increasingly necessary. Listed companies with good visibility of results, the ability to generate cash and have solid balance sheets are the preferred options of the analyst consensus.
