Inflation and war, major fears for investors

Inflation, war and restrictive monetary policy are the main concerns for investors globally; For this reason, they assured that the best strategy to combat volatility is portfolio diversification.

During a survey conducted at the “Annual Summit of Indices and ETFs in Mexico: Diversification in an Uncertain Climate”, organized by S&P Dow Jones Indices, directors of funds, investment banks and the Mexican Stock Exchange (BMV), They mentioned that the biggest challenge that investors face is the number of unknowns that there are currently, not knowing what will happen to inflation or when the war between Ukraine and Russia will end, much less what step the central banks will take in the coming months.

Gustavo Lozano, general director of Amundi Asset Management Mexico, said that other issues that generate uncertainty in the markets are the disruption to production chains, as well as the isolation of economic blocs.

“I think that the issue of recession, inflation is already discounted, discussed (…) so I think that for there to be a much more negative reaction, there would have to be a much more negative surprise than what is already discussed,” he said. José Oriol Bosch, director of the Mexican Stock Exchange.

“One of the challenges that the industry has faced is the decorrelation of all assets in the last nine or ten months. In theory we should take refuge in floating rates, in Udibonos-type instruments or in gold, which can be a diversifier that should bring down inflation”, he said.

Juan Hernández, director of the Vanguard investment fund for Latin America, commented that what works best in an environment of high volatility is, without a doubt, diversification, especially “if we are talking about a long-term portfolio.”

“The most important thing is not to lose your cool if we talk about long-term portfolios and maintain a diversification between bonds and stocks,” he said.

The manager recommended high-dividend stocks, which are good for hedging against inflation, as well as bonds that have inflation protection.

Juan Hernández said that although so far in 2022 bonds and shares have fallen, from 1976 to date this situation has only occurred seven times, in addition to the fact that when the recovery has occurred it has occurred in a maximum period of two years.

Stay on the Stock Exchange

The director of Amundi pointed out that despite the volatility, the recommendation is to remain in the stock market, since there are shares that pay high dividends and companies that will recover value. “The sum of all this, in a diversified portfolio, is something that should combat the risk of inflation,” said Gustavo Lozano.

José Oriol Bosch, director of the Mexican Stock Exchange, assured that it is still difficult to know if the stock market has already bottomed, so a risky investment strategy is to try to take the lowest point.

“There is a saying in the markets when there is a sustained fall as we have seen (…) that says: ‘don’t try to grab a knife that is falling,'” he said.

termometro.economico@eleconomista.mx