Anchor Insights December 2022

• Cuts in all equity indices but China.
  
• Appreciation of the euro against the main currencies.
• Slight drop in bonds, given expectations of higher rates due to inflation.
• Drop in energy prices, rise in gold and copper.

• Restrictive monetary policy, waiting to see the result of the strong rises in growth and employment. Probable pause or slowdown in the first half of 2023. The ECB follows the Fed with a lag.
  
• Decoupling between market and central bank expectations regarding interest rates. Who is right?
• The expected earnings for 2023 assume growth, incompatible with a recession. Attention to a U-turn in earnings forecasts.

Valuations in mean zone, neutrality. Attractiveness in equity Europe, at recession prices.

Prioritize sectors that support a recession or stagflation environment:

• Health: stable income and margins supported by public spending.
  
• Agri-food: the climate crisis and the war in Ukraine put pressure on food prices.
• Staples: with the ability to pass price increases on to the consumer.
• Financials: benefiting from an environment of rising interest rates.
  

Long term opportunities:

• Technology: Although there may still be volatility, attractive multiples and higher growth than other sectors.
  
• Cyclical consumption: It usually bottoms out before the start of recovery.
  
• Renewables: the need to decarbonize drives huge investment plans in renewable energies.

Short-term uptrend due to increased base and spreads.

• Credit spreads at average levels, both in European and American bonds. Attractive because yields are around 5%.
• Yield stabilization in government bonds, both European and American.
• High Yield in both euros and dollars may be affected by a weakening of economic fundamentals. We think risk/reward is not yet balanced.
• We continue to underweight inflation-linked bonds as inflation expectations are lower than the current rate.

• The euro gains attractiveness against the dollar due to the lag in monetary policy. It will continue to stress the ECB when the Fed pauses.
  
• Real estate bubble risks in some countries (Nordic, Canada, USA, Germany, United Kingdom), although not in Spain.
• Recession risks put downward pressure on metals and energy. Volatility in agrifood raw materials.