Variable income continues to pay despite risks of inflation and conflict

In an uncertain environment, with high inflation rates, a cycle of rising interest rates by central banks and risks due to the war between Russia and Ukraine, equities continue to be an investment option, but under a strategy selective and long-term, commented specialists.

“This year, equities are going to continue to pay, being very selective by region and by sector. The technology sector, for example, is going to be very important because it allows it to withstand short-term shocks,” commented Mauricio Giordano, country Manager at Natixis IM Mexico.

The expert explained that with Russia’s invasion of Ukraine we are faced with “exalted uncertainty”, which casts doubt on whether inflation will be temporary due to increases in the international prices of raw materials, such as energy and grains, since that the Ukraine region is important for the supply of these inputs in Europe.

“We are still in the middle of the economic cycle, we had been recovering from the significant impact of Covid-19, the issue of war may stop some things, however, there is value in some companies and there may be opportunities,” he said in an interview. Director of one of the largest managers in the world.

Mauricio Giordano considered that there are opportunities in companies that have the ability to increase prices with inflation, that can grow over time, as well as those that are focused on major issues that are not going to change, for example, consumer companies because , no matter what happens, people will continue to consume, this will not change even if something happens in the Ukraine or in Russia.

a pause

The interviewee mentioned that the war has slowed down, for a moment, equities in Europe, however, there are companies with value and opportunities.

In the United States, he said, although the gains in the markets have not been homogeneous or generalized as in past years, but there are issuers and sectors to be invested.

The managers are investing in risk, he continued, because on the one hand there is a lot of liquidity and, on the other, there is no other alternative, since the interest rates that can be achieved with fixed income are “very low and even become negative again ”.

Giordano explained that “portfolios should be maintained with some variable income while having a good selection of assets.”

The manager of Natixis in Mexico added that the risks of the Covid-19 pandemic and the monetary policy of the Federal Reserve are still present, regarding how quickly interest rates can rise.

Mauricio Giordano referred that in the latest Natixis Investment Managers survey, applied among global institutional investors, it was observed that allocations to equities reached 48.8% in portfolios in the second half of 2021, the highest since 2015, while the pressures inflationary escalated.

There was even a shift towards technology, health and European stock sectors, above those of the United States. In addition, the growing interest in investments focused on environmental, social and corporate governance (ESG) issues was confirmed.

For his part, Armando Rodríguez, general director of Signum Research, said that despite the current situation, with the war in Europe and high inflation, “equities continue to be an investment option”, although with a selective vision. and a minimum term of two years, since value continues to be found in some companies.

However, an agreement between Russia and Ukraine, he added, would be one of the main catalysts so that many valuations that are punished can recover.

“If we start from a scenario with a solution in the short term and eventually this helps the price environment (energy, agricultural raw materials and industrial metals) to stop increasing, there could be a recovery in valuations, but otherwise they will continue to increase. many companies punished”, explained Armando Rodríguez.

In fact, he mentioned that given the inflation data (which in Mexico stood at 7.28% in February at an annual rate and in the United States at 7.87%) it is likely that interest rates will increase. In the case of the Federal Reserve, it could act and raise 25 base points, while the Bank of Mexico could increase the reference rate by 50 base points.

Armando Rodríguez explained that in this environment, the opportunities to invest in the Stock Market are given in companies with the capacity to transfer or increase their prices without their sales being affected; as well as those that are not impacted in their demand for products due to inflationary increases.

“These are examples of companies to look for, not only in the specialized consumer sector; telecommunications could also enter, to a certain extent, self-service chains and real estate investment trusts (fibers), mainly those in the industrial sector, can generate value. If the situation in ‘commodities’ remains in high ranges, mining companies may benefit from the issue of higher metal prices”, added the CEO of Signum Research.

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