Below we publish the comment of Marco Oprandi, Head of Cross Asset Solutions di Cirdan Capital
With the start of the new year, we are maintaining a bullish view on the equity market from an asset allocation perspective. In fact, 2021 was superlative for this asset class: for example, theS&P500, one of the main American stock indices, set a series of new records and closed the year at the highest levels recorded. At the same time, too corporate earnings grew 50% globally in the past year than the previous one.
In 2022, we still favor equities as i real rates, i.e. the difference between the nominal yield on bonds and inflation, are negative, and the companies will continue to make significant profits following a very profitable year. Although it may seem that the high levels of inflation work to the detriment of the economy, we believe that in the short term it is more easily digested by companies, which, in the face of an increase in costs due to inflation, tend to increase prices by anesthetizing the latter. So we expect lower profits than in 2021, a year of “recovery” and accelerated post-pandemic growth, but still positive, estimating them at around 8%.
However, you need to consider the risks involved in choosing equity investments. In fact, we believe there are two main risks: high long-term inflation and rising bond yields. The former would have a negative impact as it would discount the share price in general. On the other hand, the second risk would generate a “migration” of capital from equities to bonds.
Among the various equities, in Europe we prefer the energy, mining and banking sector, or value stocks, which appear to be trading at a lower price than their fundamentals. On the other hand, in the US, we prefer stocks belonging to the medical and pharmaceutical sector, the so-called healthcare stocks. Basically, considering that the market recorded an excellent recovery in 2021, for 2022 we favor a good diversification both geographically and by sector, preferring a careful selection of the securities to be put in the portfolio for 2022.