The strategic issue to be explored in order to position oneself adequately in terms of the distribution of securities investments for the current year concerns the possibility or not of a recession.
The consensus among insiders has so far proved to be fallacious, in the sense that last autumn’s forecasts which indicated a probable sharp economic downturn with the start of the new year, turned out to be inaccurate. The marked recovery of the stock market indices during this first part of 2023, quantifiable in a recovery of around 13% for the Euro Stoxx 50, around 6% for the S&P 500 and around 11% for the Nasdaq, are the logical consequence of the upward adjustment of stock prices in the light of the satisfactory stability of the international situation.
However, the consensus among operators remains negative, in the sense that instead of admitting that, even for a fortuitous combination of factors, we are witnessing a soft landing in world economic growth, they have simply postponed the expectation of a recessionary phase by six months, so towards the end of the year. This stubbornness is difficult to understand, suffice it to note that the unemployment rate in the USA is at its lowest since the end of the 1960s and that, at least judging by the index of hours worked in January, the US economy in the first quarter of 2023 could grow more than 3%. It is also worth noting that the overall liquidity of the world’s central banks was 19.4 trillion dollars before Covid and rose to 29 trillion following the emergency monetary policy, but still stands today at a very high level of 26.1 trillion dollars. In practice, even if the forecasts relating to a further monetary tightening by the main Western central banks, the ECB and the FED, which stand at one percentage point for the prior and half a point for the latter, were to be marginally exceeded, the liquidity present in the various credit systems, exceeds that of 2019 by a good 7 trillion, confirming the hypothesis that the monetary tightening was more of a facade, considering the cost of money, rather than substance.
To this consideration we must add the real novelty in terms of monetary policy in 2023, the return to strength of the PBOC, the Chinese central bank. As already noted, in the months of December and January alone, the same injected 450 billion dollars into its system, equal to three times the creation of liquidity in the two-year period of 2020/21. As stated by Governor Yi Gang, the institute’s objective has become to support real GDP growth by keeping it in the 5/7% range, with less attention to the external parity of the yuan, favored in any case by the moderate downward trend of the dollar. In fact, if a global economic cooling does not occur next autumn, the parity of the greenback against the euro could even return close to 1.15, as the strong flows towards the safe-haven currency par excellence are gradually diminishing. The reopening of the Chinese economy, the increase in liquidity, the weaker dollar, and the stabilization of commodity prices, given the absence of a recession, should above all favor the equity markets of emerging countries, returning from a very unsatisfactory two-year period. Especially three of the so-called BRICs, China, India, and Brazil, appear markedly underweighted by institutional investors, offering valid opportunities for appreciation. As far as the technical analysis of the S&P 500 and Euro Stoxx 50 indices is concerned, we note the convincing hold of support at 3950 of the US index, which would seem to deny a further descent towards the support at 3800, while the supports of the European index are found on the quotas of 4200 and 4100 approximately.
The next few sessions will be decisive for understanding whether the Spring recovery has already started or whether the lateral movement of accumulation will continue for another week or two. In terms of sectors, apart from the indications of overbought for financials, it is advisable to concentrate on cyclicals and gradually on technology, while defensive sectors, such as pharmaceuticals and food, appear unattractive. One final consideration, of a geo-political nature, could be made relating to the conflict on Europe’s borders, in the sense that recently, as evidenced by the various initiatives of the main political players, the USA, China and the EU, the pressure on the two contenders to agree to at least a truce is intensifying, fueling the feeble hypothesis of an agreement in this sense in the coming months.
Nicola Bravetti Data Source: Bloomberg
“This report cannot – nor can – be considered a solicitation to invest in financial instruments”