Risks in stock – Newspaper Kommersant No. 194 (7395) dated 10/19/2022

Geopolitical risks have taken the second place in terms of importance for portfolio managers, having only been outperformed by rising inflation. In addition to the conflict between Russia and Ukraine, the situation around Taiwan is causing significant concern among investors. As a result, managers increase the share of cash in portfolios, although they are in no hurry to dump shares. Interest is noted in American and Russian securities, which, after the failure of recent weeks, look attractive for investment.

Portfolio managers surveyed by analysts at Bank of America (BofA) are increasingly fearful of a slowdown in the global economy. Thus, the number of respondents who do not exclude a recession in 2023 is 74% higher than the number of those who do not expect it. Managers were more pessimistic in April 2020 (against the spread of the coronavirus epidemic). The October survey included 371 portfolio managers who managed $1.1 trillion in assets.

Investors also express strong concerns about the geopolitical situation in the world. Even at the end of the summer, this risk was on the sixth place of managers’ fears, and last month it took the second place. This happened against the backdrop of increased hostilities in Ukraine, as well as the deterioration of relations between the United States and China.

According to Sergey Belyaev, managing director of the investment department of UFG Wealth Management, both confrontations affect the global macroeconomic situation across the entire spectrum – from wheat production to the restriction of high-tech sectors. “A possible military conflict over Taiwan could drastically worsen relations between the West and China and lead to the deglobalization of the world economy,” said Sergey Suverov, a strategist at Arikapital Management Company.

At the same time, high inflation remains the key risk with unpredictable consequences for the global economy. 27% of the surveyed managers called it a key one for the global economy, although in August they were 39%. Market participants expect that the aggressive policy of the leading regulators, primarily the Fed, will stop further price growth.

According to a BofA survey, in October two-thirds of those polled said that the rate could reach 4.25-5%, while earlier expectations were in the amount of 3.5-4.25%. The increase in rates, according to Andrey Arzhanukhin, director of the capital markets department at Accent Capital, has a negative impact on economic growth, but helps fight rising inflation.

Under such conditions, managers increase the share of cash in portfolios. It rose from 6.1% to 6.3% in a month, the highest since April 2002, according to a BofA survey. “A share over 5% is already abnormally high. The cash does not generate income and, in the event of a market reversal, makes a negative contribution to the overall return of the portfolio,” Sergey Belyaev explains. Therefore, managers are in no hurry to reduce investments in shares.

The number of portfolios in which such investments were below the indicative level was 49% higher than the number of those in which this share was higher. In particular, in recent weeks there has been an increase in demand for US stocks. U.S. equity funds inflowed $6.1 billion last week, the third highest since 2008, according to BofA.

“Expectation of a recession in the global economy, the Fed’s strict policy and rising rates affect market sentiment, but at the same time, many managers find the current levels as an excellent point for opening positions,” says Maxim Vasiliev, chief analyst at TRINFICO Management Company.

The Russian stock market remains subject to the influence of global trends. As before, according to Sergei Suverov, domestic investors react to oil prices, which are largely determined by the state of the world economy. In addition, active purchases have been observed in the local market in recent days. Multipliers of Russian companies, notes Maxim Vasiliev. are at record lows, which “generally agrees with the overall picture of increased investor interest focused on the long-term planning horizon.”

Vitaly Gaidaev