European shares benefit from gas – Newspaper Kommersant No. 8 (7453) dated 01/18/2023

In January, the expectations of international investors regarding the outlook for the global economy improved markedly. In anticipation of a further slowdown in US inflation and the rapid growth of the Chinese economy, managers are reducing the proportion of cash in their portfolios. Managers are favoring cheaper European equities, which are regaining attractiveness amid falling gas prices in the region.

At the beginning of 2023, there was a seasonal improvement in investor expectations regarding the outlook for the global economy. This is evidenced by a survey of portfolio managers conducted by Bank of America (BofA) analysts. The survey involved 286 portfolio managers managing $772 billion in assets. According to the survey, the number of managers who are confident that global economic growth will slow down in the next 12 months is only 50% higher than the number of those who continue to expect an acceleration in the pace. A month earlier, there were 69% more pessimists.

The latest statistics on inflation in the US contributes to the improvement of moods (see Kommersant of January 13). In December, consumer prices in the country rose by 6.5%, which is 0.6 percentage points (pp) lower than in November. “Inflationary peaks are behind us, and a bright future is ahead, which, most likely, will turn out to be completely different for the economy: the rise in inflation during prosperity will be replaced by a depression in the economy and prices,” says Anton Prokudin, chief macroeconomist at Ingosstrakh-Investments Management Company.

Adding optimism to investors, the decision of the Chinese authorities to gradually abandon the policy of “zero tolerance” against COVID-19. Since December, a number of restrictions on movement within the country have been lifted in the country, and on January 8, mandatory quarantine for those entering from abroad was lifted. “Signals from China about softer measures in the fight against coronavirus can become an incentive for the growth of consumer activity not only in the Middle Kingdom, but throughout the world by optimizing supply chains,” says Anton Prokudin. Not surprisingly, in such an environment, 91% of portfolio managers said they expected significant growth in the Chinese economy. They have never been more optimistic in 16 years of the survey.

In such conditions, managers continued to reduce the share of cash in their portfolios – according to the BofA survey, it fell from 5.9% to 5.3% over the month. However, the share of more than 5% remains quite high and indicates the increased caution of managers. The number of portfolios in which such investments were below the indicative level was 33% higher than the number of those in which this share was higher. Over the month, the indicator rose by 11 percentage points, which is largely due to active sales of US shares. According to BofA, the number of managers with a share of such securities in the portfolio below the indicative level was 39% higher than the number of those with a lower indicator. In just a month, the number of pessimists increased by 27 p.p.

Analysts and investors are looking at the US market with apprehension due to its high multiples and are looking for cheaper and more promising markets. In January, managers preferred companies from Europe and developing countries. The number of managers whose weight of such shares in their portfolios exceeded the indicative level was 4% and 26% higher than the number of those who had it lower. Over the month, the indicators improved by 14 pp and 13 pp. According to Mikhail Bespalov, an analyst at KSP Capital Asset Management, the growth in demand for assets in the European region may be associated with unrealized risks that were included in their assessment. “The situation with energy prices in Europe is not the worst – the price of gas, expressed in euros, has returned to the levels of September 2021. At the same time, the level of gas reserves in European storage facilities at the beginning of 2023 remained comfortable, exceeding 83% against the target level of 80%,” notes Mr. Bespalov.

At the same time, investors express concerns about the geopolitical situation in the world. According to the survey, 13% of respondents named this risk as a key one with unpredictable consequences for the global economy. According to the study, more than 50% of respondents believe that the military conflict between Russia and Ukraine will not end in 2023. The geopolitical agenda, according to Maxim Vasiliev, chief analyst at Trinfico Management Company, may remain one of the main topics for many years to come.

Vitaly Gaidaev