The economy: Peak inflation is near
-
All indications suggest that Q4 2022 and Q1 2023 growth may be negative in certain countries, confirming the “slowdown” we have been expecting. Table 1 contains some recently published forecasts for the world economy:
- This dim scenario seems rather likely. The good news is that, according to the latest reports, inflation is nearing its peak.
- Declining oil and gas prices in Europe, the result of an autumn with mild temperatures, have provided relief to both companies and individual consumers.
- Consequently, monetary policy is trying to find a balance to prevent triggering a pure and hard recession: the Fed chairman just confirmed as much.
- Europe’s energy policy debate has intensified. Finding compatibility between the security of supply and low prices is no easy task.
- Tensions between the EU and the US over the very large subsidies agreed to by the Biden administration cloud transatlantic relations, though an agreement will likely be reached.
Markets: Prices continue to rebound
-
Hope that the pace of interest rate hikes will ease soon has reinvigorated public debt and equity markets (shares). Table 2 illustrates the performance of EDM’s investment funds in November, which show a continuation of October’s trends and a reduction of the losses posted over the course of the year.
- Many investors are wondering about profit growth for 2023. It will likely be modest, in the single digits, which would still be favourable after the magnificent figures of 2022.
- Still-high core inflation rates suggest that—with any luck—the first interest-rate cuts will not come until late 2023 or early 2024.
- Sovereign debt clocked yet another episode of volatility and prices are recovering, not enough, however, to prevent a very negative annual result.
- The dollar has declined in recent weeks but maintains, for the moment, a healthy level of annual appreciation (+9.26%) supported by: (1) elevated short-term interest rates, (2) a still-strong economy, and (3) geopolitical protection while war wages in Europe (Ukraine).
Investment policy: Chase market minimums?
-
Bonds issued by companies with good credit ratings (investment grade, IG) offer short- and medium-term yields. This alleviates the income needs of many savers.
-
Excessive concern about investing at market minimums has historically led to poorer results in the long term, since the bottom of the market is only known... in hindsight!
-
Therefore, based on the fundamentals of the businesses in which we invest and their valuations, we persist in the belief that it is an excellent opportunity to build a portfolio of quality shares.
-
We continue to systematically scrutinize the investment thesis that underpins our selection of assets and we are convinced that this is the best way to protect our clients’ net worth, since we expect our portfolios’ EPS growth to exceed that of the market overall in 2022 and in 2023.
LEGAL CONSIDERATIONS
1) This information, which constitutes EDM advertising, is intended for informational purposes only in accordance with the rules of conduct applicable to investment services in Spain, and is therefore sufficient and understandable for any potential recipient. The information may refer to or entail additional, separate documentation, which you may request from EDM. If this information contains offers of products, financial instruments, or services, recipients may avail themselves to any complementary or additional documentation that enables them the comply with the terms and conditions of the offer in question.
2) EDM Gestión, S.A.U. SGIIC is a limited liability company under Spanish law registered in the CNMV’s Special Registry of Collective Investment Scheme Management Companies (Registro Especial de Sociedades Gestoras de Instituciones de Inversión Colectiva) no. 49, and in the Commercial Registry of Madrid, under volume 36,739, sheet 52, page M-658.326, with tax identification no.: A-58.217.175. Its activity includes the representation, management, and administration of Funds and Investment Companies located in Spain and subject to Spanish law, in addition to discretionary portfolio management.
3) Recipients of this information must take into account the fact that any result or data provided may be subject to fees, commissions, taxes, and expenses, which may decrease or alter the gross result, depending on the nature of each case.
4) The instruments included in this information are subject to the potential effects of several common causes, including:
- Market fluctuations due to unforeseen circumstances.
- Liquidity risk and other risks that alter the evolution of the investment.
5) This information contains data that reflect the past performance of the cited products. The data is a reference or record used to reach a conclusion, but is in no way an indisputable indicator of future performance.
6) This documentation may contain data based on currencies foreign to the recipient. Therefore, the possibility of an upward or downward fluctuation in the value of the currency and its effect on the results of the proposed product or instrument should be taken into account.
7) To ensure discretionary portfolio management services are provided within the scope of suitability, MIFID regulations require EDM to collect the necessary information regarding its clients’ investment goals, financial capacity and investment experience and knowledge. To that end, EDM will obtain the information needed to create an investment profile of each client, consistent with their particular circumstances. Regulation does not permit EDM to render discretionary portfolio management services without the information necessary to assess the suitability of its clients.
8) To obtain the mandatory legal information, please visit the website of the management company EDM Gestión, S.A.U. SGIIC at www.edm.es. You may also obtain a hard copy of this information upon request, free of charge.
