Calm returns to the markets (after quite a storm)

Calm seems to have returned to the markets after the fallout caused by the collapse of Silicon Valley Bank (SVB) and the Credit Suisse fire sale, which sent the stocks of a good number of financials south by more than 10% in some sessions.

Alberto Matellán, chief economist at MAPFRE Inversión, explains that these episodes in the markets tend to last “a limited time” and are more psychological than anything else, so investors are reacting as if this had been a relatively minor event, not comparable at all to something like the fall of Lehman.

"The most striking thing about these cases is how quickly a bank can go bust today. Being able to move customer deposits to another company in less than 24 hours is different from what we’ve seen in other bank bankruptcies, with people queuing up to withdraw their savings and lines around the block to access an ATM," says Ismael García Puente, fund manager and selector at MAPFRE Gestión Patrimonial.

García Puente sees no reason to worry about banking at a general level, and stresses that there are numerous different factors at work compared to what we saw in 2007 and 2008, despite the fact that “fear and bitter memories of the past” mean that investors create parallels today that don’t entirely line up.

“Rate hikes have been so dizzying that it's normal for there to be an accident somewhere along the way,” he says. In his opinion, the next tremors could be felt in real estate loans, with the exception of the residential segment, given that small and medium-sized US banks are quite exposed.

However, García Puente doesn’t think that the solution is not to invest in the real estate sector, but rather to always be highly selective when doing so. The fund manager and selector recommends investors to remain cautious with equities, in line with their strategy of recent months.

He therefore sees potential for companies that are capable of defending their margins in a high inflation scenario and in terms of fixed income, he believes that the inversion of the rate curve should be leveraged to achieve greater profitability with a lower duration risk, despite the volatility of the short sections.

 

Return to the fight against inflation

Once financial stability is achieved, it’s time for central banks to revisit another of their main mandates: the fight against inflation, which remains at stubbornly high levels.

For Matellán, the important thing is to see how companies deal with it and the effect it has on their earnings, since those who can exercise the most market power against their providers and clients can stay the course longer, while others in a weaker position who find it difficult not to pass on price rises will see demand fall.

 

Need for active investment by tech companies

MAPFRE Inversion’s chief economist highlighted the need for active management in relation to tech stocks, which have recorded significant losses across the board since central banks began upping rates.

“The structure of the sector has changed radically and it’s not a foregone conclusion now that the winners are going to be the ones we all thought,” he says. For example, platform-type companies depend on a series of parameters that are “difficult to replicate” so it will be difficult to rinse and repeat the successes achieved in the last 10 years.