Banca March places fixed income in short positions as one of the key assets to navigate the market this 2023. in an “investment alternative”. The premise is supported, according to the director of Market Strategy of the financial group, Joan Bonet, in that in a context where the end of interest rate rises is in sight, fixed income usually obtains a good performance, whether it is finally produce the dreaded recession, as if it did not materialize.
Specifically, Bonet points to high credit quality corporate bonds, since they offer an IRR above 4%. In any case, he insists on the short duration, since the yield curves are still “very inverted”. “The additional profitability comes from its lower liquidity and not from a default risk, which historically has not been higher than those seen in markets such as ‘high yield’ and underlying inflation rates will take several months to normalize,” they remark. The Mallorca-based company also highlights public debt, although it is convinced that they will become more attractive as macroeconomic expectations deteriorate, so it recommends following their footsteps and taking positions over the coming months.
“A lot of illusion in a not so good scenario”
The rise in the stock markets in recent weeks has breathed optimism into the market after the crash of the last year. A situation in which Bonet calls for caution and warns that there is “too much illusion” in the face of a horizon that does not seem to be as rosy as it seems at first glance. “The pauses in the Federal Reserve’s rate hikes are not good, however, since for the stock markets the evolution of the economy is much more decisive,” says Bonet.
His forecast is that the pause in interest rate increases will take place between March and May in the United States, when they will have reached the level of 5%, while in the euro area we will have to wait until summer, when rates reach 3 ,5%. From Banca March they completely rule out that this 2023 the two main central banks worldwide announce any reduction in rates.
Against this backdrop, they opted for US equities due to their lower energy dependence and the stock markets of emerging economies, where downward revisions to corporate profits have been “much more aggressive” and, therefore, there is an opportunity . Within this category, it shows a predilection for the Asian market after the reopening of the Chinese borders, which can serve as a boost for global activity.
The Eurozone, for its part, will be plunged into lower economic growth or stagnation and will continue to face challenges such as the energy crisis due to its high dependence on the exterior. Within this region, Spain stands as one of the best stops as a result of its delay in the recovery of pre-Covid activity.
By sectors, Bonet targets technology companies, since although they do worse in environments of restrictive monetary policies, they have the capacity to generate profits. It is a cyclical area that recommends combining with others such as health or energy transition.
