Kairos illustrates its market outlook, with the managers’ view for the second quarter of 2022. Tips for orienting asset allocation, in 7 points
The month of March is now running out and the first quarter of the year is also closing, which was extremely complex and marked by uncertainty for the financial markets. After having filed 2021 with double-digit positive performances, the stock markets reversed their course starting from January, only to be hit by strong volatility following the Russian invasion of Ukraine on February 24th. Kairos collects the managers’ view for the second quarter of 2022 by presenting its market outlook on the performance of the main asset classes and on the most important investment trends. Faced with the current general context, according to Kairos’ thesis “investments must maintain a character of prudence, flexibility and high quality”.
To take stock of the situation Guido Maria Brera, chief investment officer of Kairos, who in his opening comment, underlines that: “the crisis of this year is in many respects worse than the pandemic of 2020 and the ‘new normal’ will be different from the geopolitical pressures of de-globalization, de-dollarization and a normalization of interest rates and central bank purchases “. Dwelling on the markets, Breda explains that the rise recorded in recent weeks has occurred thanks to what is defined as a technical rebound due to excessively negative positioning. “We now believe that the potential economic decline is not correctly priced: the situation will need to be assessed in the coming weeks, when we will most likely see manufacturing data go down – adds the chief investment officer -. However, the good news is that this year will be favorable for active managers after months of underperformance versus liabilities, as there have been record flows of purchases to an almost indistinct extent. Now the rating dispersion is high and create stock picking opportunities at sectoral and individual name levelnavigating through the different scenarios in a dynamic way “.
Second Alessandro Fugnoli, strategist in Cairoglobal growth, albeit penalized by geopolitical tensions, will continue in the coming months, taking into account that: “If the conflict in Ukraine remains at not particularly high levels of intensity and if the sanctions avoid involving too much Russian energy, the world will succeed soon enough to find a balance, but the price will still be global growth at least one point lower and inflation higher than the estimates at the beginning of the year by the same amount ”. In the coming months, if the conflict does not evolve in unexpected directions, the stock exchanges will continue to move irregularly but substantially sideways., while bonds will still have a difficult stretch of road ahead, albeit not like the one we have seen in recent weeks. Considering the uncertainty about the war, high inflation and the demanding monetary normalization that await us, investments will have to maintain a character of prudence, flexibility and high quality. Equities will need to retain an important role in portfolios, but will need to be geared towards companies with strong balance sheets and low valuation levels”.
Equity Italia, the point of Trabattoni
Looking at Italian equity, we look at “a delicate balance between inflation and recession”. In particular, Massimo Trabattoni, head of italian equity, explains that “at the dawn of the second quarter of 2022, visibility on the performance of the real economy and financial markets is extremely low given the many variables involved”. According to the expert’s view, in this scenario on the Italian market two main sectors emerge as winning: economic activities linked to energy independence and those linked to military defense.
Orient asset allocation in 7 points in the second quarter
Kairos summarizes in 7 points how to orient the asset allocation in the next quarter.
- Core duration is once again a plausible proposition.
- The dollar seems no longer sustainable.
- Speculative excesses on commodities should deflate.
- The game on the stock markets is more complicated: they historically record positive returns also in the cycles of rate hikes, but this time they will have to face monetary tightening at the same time as a significant slowdown in profits. This will shift the balance in favor of stocks with stable growth and profitability, ending the rotation that value themes have benefited from over the past thirteen months: a favorable outlook for our portfolios, which are heavily invested in innovative technologies and related themes. to climate change and energy transition.
- Such dysfunctional markets in the short term are a great opportunity for long-short equity strategies and for those that invest in credit.
- Likewise, alternative strategies, in their various forms, can find fertile ground in the many inefficiencies produced by the comings and goings of flows and by the perverse investment mechanics that drive a growing portion of actors.
- Similarly, the opportunistic attitude in the short term will be another engine in the search for performance.