Anchor Insights October 2022

• September was a month of significant drops in stock markets and fixed income.
  
• The dollar hit new highs against most currencies, reaching 0.953 on the euro.
• Employment and inflation data continued to weigh negatively, fueling fears of higher rates and recession.

• In the short-term, we favor bonds over stocks, although valuations are beginning to be attractive for long-term investment.
  
• Although a better-than-expected publication of Q3 results is expected, profit warnings may have a negative impact on the stock market, leading to a phase of capitulation.
• The odds of a pause in the path of rates increase by the Fed towards November are looming, as signs of moderation in inflation arise.

Geographic neutrality. Valuation opportunity in Europe, at recession prices.

The most defensive sectors can benefit from a late macro cycle, even recessive:

• Health: We can find quality companies with stable income and margins.
• Agri-food: the climate crisis and the war in Ukraine put pressure on food prices.
• Defensive consumption: with the capacity to transfer price increases to the consumer.

Long term opportunities:

• Technology: at reasonable multiples for long-term growth.
• Biotechnology: advances in the treatment of diseases will encourage M&A in this sector.
• Renewables: the need to decarbonize drives huge investment plans in renewable energies.

Short-term, attractiveness due to base and spread increase.

• Credit spreads at high levels, both in European and American bonds. We see them attractive because yields are around 5%.
• Risk of IRR increase in government bonds, both European and American. Europe, moreover, country risk premiums on the rise.
• High Yield in both euros and dollars could be affected by a weakening of economic fundamentals. We believe that it still does not pay for bearing risk.
• We continue to underweight inflation-linked bonds, as inflation expectations are lower than the current rate.

• The dollar continues to be a safe haven asset in the face of geopolitical uncertainty. Range 0.95-1.00 in the short term, in which to reduce dollar exposure.
• Private equity bubble risks: lots of money to invest with still high valuations.
• Inflation and supply problems favor the agri-food sector. We see medium-term growth for these Soft Commodities. On the other hand, the risks of recession put downward pressure on metals and energy.