“The market’s not looking good, but it’s no reason to go on a crazy selloff”
During the week, panic selling has been the main feature on the stock markets. Worse still is the fat that risk premiums have shot up again, mainly in Italy, raising doubts about whether the country could fall into a debt trap. However, as Alberto Matellán, chief economist at MAPFRE Inversión stated, "the current situation differs from 2012 and is more controlled from the point of view of financial stability". Moreover, as has been seen, “the ECB has sufficient tools at its disposal, language being the most important one”. That sentiment was borne out during the week when, during Wednesday's session, the mere announcement of a scheduled emergency meeting by the monetary institution returned a tense calm to the markets for a few hours.
Matellán’s wish was to convey an optimistic message, but also a realistic one. The expert was confident that these rises in debt yields would have an immediate macro effect, in that “it drags growth down at a time when forecasts were already being revised downwards”. All this will lead, according to the economist, to a downward revision of corporate earnings. "Given that this effect is more pronounced on the economy than on financial stability, interest rates must absolutely be raised, in order to curb inflation," he added during his weekly appearance on Radio Intereconomía, a few hours before the US Federal Reserve meeting.
This greater risk aversion that investors have shown has been ignited by the most volatile assets, such as cryptocurrencies. But, as Matellán indicates, "there’s nothing behind these assets anyway, just a group of anonymous people hiding behind screens who agree that it’s useful for something." "When there’s a lot of liquidity around, as has been the case up to now, all assets go up, but when that liquidity dries up, the most volatile assets are the ones that suffer the most," he stressed.
Despite the uncertain outlook, the economist sent a reassuring message to investors: “Don't lose your nerve. The stock market doesn’t look good now, but it doesn’t mean you have to go on a crazy selloff, quite the opposite”. And he explains: “When I buy stocks, it signals that I have an aggressive profile and that I want to hold the shares for the long term. Now I could have lost 20%, but the most likely scenario is that I’ll recover that in the long term.”