Amid uncertain and volatile markets, François Savary, CIO at Prime Partners, discusses the latest developments in global markets with this news service.
Geneva-based consultancy Prime Partners highlighted this week how interest rate swings remain the central issue for the behavior of the economy and financial markets over the coming months.
Addressed exclusively to Heritage Briefing, François Savary, chief investment officer, highlighted how questions about interest rates have caused volatility in financial assets since the start of the year. He believes that interest rates should remain the top priority in investors’ thinking in 2022.
Savary stressed that a return to calm in fixed income assets is vital for stocks to perform better. He warned of high levels of inflation and market volatility, but he is not yet convinced that there is a “clear recession”, pointing out that various leading indicators and the strength of labor markets in the developed economies do not really support such an assumption.
Given an economic and financial environment still affected by multiple uncertainties, Savary favors equities over bonds, saying that an underweight in bonds remains appropriate over the next three to six months.
Wealth managers are grappling with how to position portfolios in an era of rising inflation, rising interest rates and the possibility of a recession in some parts of the world.
The company has a strong focus on investments in Asia. Although China was very close to recession in the first half, he believes that the situation should improve in the second half, depending on how the country handles the Covid pandemic.
He pointed out how Chinese equities have suffered over the past 12 months, but he thinks opportunities are emerging there. “China could be a good investment opportunity, with its low inflation rates and less restrictive monetary policy,” he said.
He also finds defensive stocks attractive, such as healthcare and biotechnology companies. Defensive stocks tend to do well when leading indicators reposition and political uncertainty is high, as it has been so far this year. He favors companies like Novartis and Nestlé.
In conclusion, he said that markets in the second half of the year should stabilize, although much of this depends on the ability of central banks and the Fed to sufficiently reduce inflation through monetary tightening. He said the Fed would raise rates in the coming months and he expects inflation to slow to around 7% by the end of the year and 4% in 2023.
Savary nevertheless believes that Europe has a higher risk of recession due to high levels of inflation and an energy problem, caused by the Ukrainian war with Russia.
Based in Geneva, Prime Partners is an investment management and advisory company, which assists private investors in the management of their wealth.