How do you see the markets at the beginning of the year?
The markets at the beginning of the year are quite turbulent and in the red, with increasing uncertainty. We start the year with the uncertainty of inflation and the monetary policy of the central banks with the increase in interest rates, beginning to discount a more aggressive increase in rates by the Fed and the ECB, and to this is now added the geopolitical uncertainty with the conflict in Ukraine, Russia and the US, which implies greater volatility for the markets and uncertainty. These increases in interest rates, which the market is still discounting, would lead us, together with this geopolitical conflict, to a possible stagflation, a possible stagnation of economic growth. In these first months of the year, the business results of 2021 have been positive in most cases, results that have not been reflected in the behavior that these shares or these values have had, which has been downward in general. This has also been because the different companies that have presented results have been very cautious in their forecasts for 2022. However, business profits for this 2022 are expected to grow by 7% on average. With which a convulsive start to the year and with many uncertainties both on the economic and geopolitical sides, which gives a lot of volatility and uncertainty to the market.
What advice/recommendation are you giving to your clients with more conservative profiles? And the most dynamic?
In general, clients in this environment of uncertainty must be accompanied. As financial advisers we have to develop our profile a little more than “psychologists” and provide them with that financial education and explain to them what the environment is and why certain funds or shares are chosen to have in their portfolio. Mainly the advice is that time and patience are our allies. Time because investments are long-term and patience because there are certain factors that we cannot control and the recommendation is to always be invested. And it is that, as Warren Buffett says, the financial market, the stock markets, is a transfer of money from the impatient to the patient. So the recommendation is to be patient, you know how to be calm with the given and well-founded recommendations and explain the market situation well.
Tech companies are suffering this 2022. Do you think you have to stay in them?
Yes, it is true that the harshness of these falls is being carried by the technology sector, as a consequence of the increase in interest rates, as it is one of the sectors that most harms this. However, technology is part of our lives and is a base that must be had within the economy. In addition, within the technology sector there are many subsectors. I think you have to keep it in your portfolio, but you have to have technology companies that do demonstrate their good work and growth, their generation of profits in the long term. In this case, we would be in the big technology companies, not in those emerging technology companies that have not yet shown that generation of benefits, given the moment of uncertainty that we have. Companies that are not indebted and in very specific technology segments; For example, in semiconductors, yes, since the supply problems are being solved a little, also in cloud storage and in the big technology companies. We have to analyze the environment in which we operate and which companies are leaders in what society demands: recommended technology companies are ASML, for example, SAP for cloud solutions, and leading companies such as Alphabet or Microsoft.
Commodities such as oil or natural gas are the big winners in this exercise. How do you see them?
Indeed, one of the winning sectors at the beginning of the year, along with the banking and insurance sectors, is the energy and raw materials sector, and I think we should be. In this moment of uncertainty we must play the winning sectors. I believe that the energy companies may still have an upward path, they have also presented good results, such as the company TotalEnergies, and increased dividends and repurchases; If we focus on TotalEnergies’ recommendation, it could give us a dividend yield of 8.5%, divided into 5.5% in dividend and around 3% in share repurchase. In addition, they have in their favor the increase in demand for crude oil, they are cash generators and this generation of cash and profits is calculated with a price of crude oil below what we currently have… with which all are positive elements for continue to have this sector in a portfolio with, for example, TotalEnergies, Repsol or the Portuguese oil company Galp. On the raw materials side, the other winning sector due to price increases, a good option is anything that has to do with mining.
How do you see gold?
Gold is a “must” in the portfolio. It is an investment that is “very fashionable” right now due to the issue of inflation protection, but I think we should always have gold in part of the portfolio. We can have it in futures, through ETFS or gold miners. But I think that currently, as a protection against inflation, a part of the portfolio should be held in gold.
Where do you see opportunities in the Ibex 35?
In the IBEX 35 we see opportunities in internationalized companies or those that have to do with the aforementioned sectors. On the defensive side, those companies that have a high dividend yield. However, I am focused more on the European sector, where there are more opportunities. In the Ibex 35, to give ideas, Acerinox, which is the world leader in stainless steel, is highly diversified internationally, is the leader in the US market with a large market share, is the European leader, is also in South Africa, has pricing, demand is accompanying it, it has a fairly attractive dividend yield at 4.5%… for all these reasons we would be in Acerinox. On the defensive side, in Spain we would be Logista: good results, a less volatile company and an attractive dividend yield of 7.5%. In Europe, we see plenty of opportunities in cyclical sectors, related to the price of crude oil or raw materials, such as TotalEnergies or GALP; related to the cycle in the auto sector Stellantis has very good results and an attractive dividend yield. And also in this inflationary environment, companies that have the power to set prices and that are not affected by possible economic deterioration would be in luxury companies such as Louis Vuitton or Kering, because in this sector the demand is more stable and is increasing, and here The possible rebound for 2022 in Chinese demand should be highlighted.
