What do 150 fund managers estimate about the course of the markets – The opportunities and the risks

Her Eleftherias Kourtali

Despite the tradition of … “sell in May and go away”, ie the well-known motto of investors to … leave the markets in May, this year the fifth month of the year marked the first so far in 2022 that the majority of was in positive territory, with the Greek Stock Exchange, however, being placed among the big losers (losses of 3.44% for the General Index and 5.16% for the banking), together with the MOEX index of Russia, silver, gold and government bonds of the Eurozone region. This is due to a combination of factors, including the prospect of less aggressive interest rate hikes by the Fed, as well as the easing of restrictive measures in China.

However, Deutsche Bank analysts warn that the risk of recession remains real, with 29 of the 38 markets monitored losing ground since the beginning of the year and, if this trend continues, it will be the second worst annual performance since 2008.

As the analysts warn in general, the environment of the international markets is multiplied and does not foresee any improvement in June, thus continuing to influence the behavior of the Greek Stock Exchange.

The … spells of BlackRock, SocGen, JP Morgan

It is no coincidence that BlackRock, one of the largest investment funds in the world, reduced its exposure to stocks a few days ago, after a long period of being overweight. As he noted, if in the long run he continues to prefer stocks over bonds, in the short run he chooses to be cautious and cautious, given that the climate is particularly fragile, with fears of a slowdown in the economy, persistence of high inflation and yet unclear stance that central banks will hold in the near future to dominate and are expected to continue to cause strong volatility. In addition, commodity shocks continue, and China’s recent lockdowns on COVID have exacerbated already weak macroeconomic prospects. To return to the overweight stance, BlackRock is waiting for things to become clearer as to the Fed’s stance. Until then, he believes that risk assets can be frustrating, as it may take a few months for the appropriate conditions to allow for risk-on.

And according to the Société Générale, the current negative investment climate around equities could change when most of the Fed and ECB interest rate hikes in this cycle have been priced. With the market expecting the Fed interest rate to peak at 2.95% in May 2023 and the ECB interest rate to 1.5% in March 2024, we are already quite close to the US and not far behind in the Eurozone. After all, as he notes, the European stock market trades on attractive terms, with an estimated 12-month P / E ratio at 12.7x, 13% below the decade average (14.5x). Any escalation in the Russia-Ukraine war is likely to support the risk appetite for European stocks and, therefore, restore some of the outflows we have seen from international investors.

JP Morgan is optimistic about the course of the markets, as, as it emphasizes in the latest investment strategy report, it remains positive for risk assets due to the negative positions of investors, which are moving close to record levels, and in its view do not There will be a recession given consumer support especially in the US, the global reopening of the economy after COVID and the recovery expected in China. The war in Eastern Europe remains a significant risk, but most likely in the second half of the year there will be a solution, according to JP Morgan. “Despite the sharp sell-offs we have seen in the markets recently, we believe that the shares will recover from the losses they have recorded and will close in 2022 close to the levels of 2021,” he points out.

Of course, the American bank emphasizes that it does not recommend the purchase of shares without discrimination. Currently, there is a huge dispersion of performance and valuation and, therefore, opportunities for performance. Some market segments (defense stocks, basic consumer goods, etc.) are trading close to historically high valuation levels, while other market segments (eg innovation, small capitalization, energy, biotechnology, etc.) are trading almost at historically low. “For this reason, we believe that the most attractive investment opportunities are in those sectors that have outsold and provide upward margins,” he said.

150 fund managers see a recovery in the markets but also variability

According to a new Reuters poll of international markets by 150 international analysts, global stocks are projected to recover from current levels, but will remain well below historical highs, both this year and next, as recovery will be sluggish but also uneven.

In contrast to previous episodes, where investors saw the corrections as opportunities to buy stocks, the current downward trend is expected to be more persistent, underscoring the deteriorating outlook for risk assets. This shift is largely due to the fact that stocks no longer have a backstop from central bankers, who are closing the liquidity taps and now focus more on fighting high inflation, raising interest rates, in many cases aggressively.

While analysts predicted a boring year for shares in a previous Reuters poll, conducted just days before Russia invaded Ukraine on February 24, the war caused a sharp upheaval in stocks, with the US Standard & Poor’s 500 in May to enter bear market ground, although it subsequently recovered.

The Reuters poll, which covers 17 key international indices, showed that most major stock exchanges will find it difficult to recover from the losses they see by the end of 2022. Almost everyone is expected to end the year below historic highs and remain below them. until the middle of 2023.

“Global stocks are in the middle of an unfinished bear market. Macroeconomic data and profitability continue to decline as global economies move towards the end of the current economic cycle. In addition, our analysis shows that earnings revisions are slowing globally. notes Michael Wilson, chief equities strategist and head of investment at Morgan Stanley.

More than three-quarters of analysts who answered a separate question said the current slowdown would last at least another three months. While 48% said it would take three to six months, 21% said six to nine months, 6% said nine to twelve months and 4% said one year. The rest chose less than three months.

Underlining this negative outlook, forecasts for the levels at which international indices will move at the end of 2022 were lower than those in the February poll. Only the outlook for Mexico’s IPC index has been upgraded, by a small amount.

The wider range of forecasts for the end of 2022 compared to the February poll shows a greater degree of uncertainty about what will follow. Nearly 60% of analysts estimate that volatility, which has fallen from this year’s highs, will rise in the markets over the next three months. 40% said it would decrease.

“As growth slows and inflation persists, markets will be more volatile,” said Samir Samana, a senior strategic analyst at international markets at the Wells Fargo Investment Institute.

The “value” shares are expected to exceed the returns of the “growth” shares for the rest of the year by 82 fund managers, while 23 estimate that the “growth” shares will perform better.

While Wall Street analysts estimate that the US S&P 500 will end in 2022 above current lows and rise more than 10%, they do not expect to recover all of its losses of almost 14 % currently recorded since the beginning of the year.

ECB fears of recession and war haunt the prospects of European markets

The tightening of the European Central Bank’s monetary policy, fears of a recession and the economic impact of the war in Ukraine are expected to hold back any significant rise in European equities for the rest of 2022, according to a Reuters poll of 150 fund managers and analysts. strategy. As predicted, the pan-European STOXX 600 index will reach 450 points by the end of the year, recording an increase of 3.1%.

European stocks have plunged more than 10% so far this year, marking their worst annual start since the COVID outbreak in 2020 and their second worst start since 2008.

The decline in European stocks comes despite the optimistic results of the first quarter, where there was a 41.5% increase in the profitability of listed companies, according to data from Refinitiv. Excluding the energy sector, profits increased by 22.4%.

However, the outlook remains uncertain, with shares in the region facing a series of headwinds in the second half that cloud the outlook for earnings growth.

The ongoing war in Ukraine, persistent inflation and the increased risk of recession are all factors that reinforce the uncertain scenario, according to Stefan Ekolos, a strategic stock analyst at Tradition. “We are still wary of stocks, given the very difficult geopolitical and macroeconomic environment combined with the risk of profit margins,” he said, predicting that the pan-European STOXX 600 index would fall to 380 points by the end of the year.

Among the key indicators, the German DAX is estimated by funds and analysts to end the year with losses of 1.2%, while the British FTSE 100 at -0.3% and the French CAC 40 at + 0.4%, all in relation to the levels of the end of May.

One of the main risks cited by pollsters was the speed with which central banks, including the European Central Bank, are expected to tighten policies year-round to curb inflation.

European Central Bank President Christine Lagarde recently said she sees the ECB’s deposit rate at zero or “slightly higher” by the end of September, indicating an increase of at least 50 basis points from its current level. Money markets are pricing more than 100 basis points for ECB interest rate hikes by the end of the year. The ECB last raised interest rates in 2011 and the deposit rate has been in negative territory since 2014.

“The ECB’s aggressive move in monetary policy, especially when growth is expected to slow down, will have a negative impact on the region,” said Philip Lisiban, chief strategic analyst at Credit Suisse. He notes that prolonged higher energy prices, a diffusion or escalation of the conflict in Ukraine and a stronger euro are key risks to the outlook for Eurozone shares.