Insights from Ismael Garcia Puente, fund selector and manager at MAPFRE Gestión Patrimonial, one of the largest insurance companies in Spain and Latin America. Ismael believes that challenging markets and global economic uncertainty mean investors should seek to change their portfolio models this year.
In his words, everything that worked well in the last decade, including technology, discretionary consumer spending and bonds, may not work well in the future.
In 2022, inflation reached all-time highs; Europe, which thought it had left the great wars behind, had found itself involved in a conflict of global proportions; and China, which for 30 years led economic growth in Asia, will be outpaced by other emerging countries.
In the markets, the central banks are done with the era of low-interest rates, having turned off the liquidity tap and accelerated the withdrawal of stimuli.
Even the Bank of Japan, which unlike the European Central Bank (ECB) and the Federal Reserve, had chosen to maintain rates, announced an extension of the range of fluctuations in the 10-year bond yields (from +/-0.25% to +/-0.5%), which translates into a shift toward normality.
For me, these events all contribute to a change in the global investment model. At this time, it’s very difficult to develop a baseline scenario for portfolio management, since everything that worked well in the last decade (mainly technology, discretionary consumer spending and bonds) may not work that way in the future.
Consequently, it’s time to adapt, to review the economics textbooks and to build even more diversified portfolios with the idea that having a broad spread of many different risks is better than having a lot of a few risks.
The future belongs to sectors, companies or asset classes that have been reviled for a long time. And although MAPFRE advises against "market timing" (entering and exiting the market according to the prediction of the price of an asset), in this new market environment, investors need to be more tactical and make more changes to their portfolios to take advantage of new opportunities.
First of all, you need to be aware of the reality of the market. Analysts take a slowdown in the economy for 2023 for granted, so they’re seeking defensive positions, and that means companies that are capable of maintaining their margins. As for bonuses, it's possible that 2023 will bring some joy.
Bank of America, for example, sees opportunities in fixed income during the first half of the year. And I believe that the horizon for Chinese equities will clear up. Regardless of what type of investor you are, though, one thing that’s crystal clear is that the instability will last until at least 2024.