The markets have not, at least for the time being, entered into a state of panic over Evergrande

Sep 21, 2021

Redacción Mapfre

Redacción Mapfre

Investors’ eyes are fixed on China and, in particular, on the real estate giant Evergrande. It is being called the new Lehman because of the effects that this company, which is on the verge of collapse, could have on the system. As a result, the markets began this week with sharp declines, with the financial sector being the most affected. However, Daniel Sancho, head of investments at MAPFRE Wealth Management, explained on the “Ponte en Acción” talk show on Negocios TV that the financial markets cannot be considered to have panicked, at least for the time being. According to the expert, investors are waiting to see what decision the Chinese government makes in this regard. “A decision must be made that makes as little noise as possible. It seems that people are not expecting it to fall, since we have already been warned by the authorities that homes are not for speculation, but it seems that it would protect citizens,” he noted.

In a discussion with Gonzalo Lardiés, senior equity manager in Europe at Andbank, he said that it never hurts to make these adjustments from time to time. “That’s how we're reminded where we invest, because equities are volatile,” he added. In the same way, Lardiés recalled that, “we have had [practically] no major correction since November of last year.”

Does this mean then that markets are being too complacent about risk? In this sense, Lardiés pointed out to what extent they can be considered markets, when many parties “seem to be reserved for the central banks.” “Some issues that were unaffordable from the standpoint of financial equilibrium at other times, are so today,” he added.

The financial sector has borne the brunt of this adjustment. In fact, many European institutions have a high exposure to emerging countries, and the largest emerging country is China. In addition, banks must continue to juggle their margins to maintain a minimum level of profitability in an environment of increasingly prolonged negative rates. However, Sancho urged that there is still value in the sector. “Today they have fewer excesses and more controlled risks, they are healthier and better capitalized, so it is better to invest now than before,” he explained. Nevertheless, as he has done on other occasions, he advocated active management to really see where there is value.

Spain has been given some good news with new forecasts from the OECD, which show it will be the economy that will record the strongest recovery this year. Does this also mean that there are opportunities in the Spanish market and, specifically, in the Ibex 35? The MGP expert explained that the Spanish select index must be well understood. Although the weight of the financial sector has been reduced in recent years, together with utilities, it is still very significant. In addition, the index has some Latin American bias. “From an asset allocation point of view, we consider Spain as part of Europe and, in the asset allocation, we include it in Europe. We will always have exposure because there are fantastic companies, but we should not associate the Ibex 35 with Spain’s performance,” he concluded.

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