Stock Groups

Don’t panic? Strategists give reasons to stay invested despite market turmoil


Stocks around the world have been suffering from bruising for the past week. a difficult year so farHowever, some analysts believe that the market will not capitulate due to the recent selling.

The S&P 500Closed Monday’s trade was down by more than 16% from the start of the year and nearly 12% for the first quarter. The pan-European Stoxx 600On Tuesday afternoon, the stock was more than 13% below the previous year. MSCI Asia Ex-JapanClosed Tuesday’s trade slightly lower than 16%

Investors are a growing group fleeing risk assetsDue to the confluence factors of many interrelated factors such as persistently high inflation, slowing economy growth, war in Ukraine and supply shocks coming from China. And most importantly, because of the possibility of central bank interest rate increases to restrain consumer price rises.

CNBC heard Tuesday from strategists that investors still have opportunities to earn returns. However, they might need to be selective.

The markets are full of fear, but there is also plenty of volatility. At least with the steps we take, I don’t believe we have reached full-on capitulation. Fahad Kamal from Kleinwort Hambros is the chief investment officer. He told CNBC’s SquawkBox Europe that “I don’t think it’s quite in oversold territory yet.”

Kamal suggested that the mixed signals of a “reasonably strong” economic backdrop and mostly robust earnings — offset against rate rises and inflation concerns — meant it was difficult for traders to assess the likelihood of a full blown bear market emerging.

Due to the continued and significant rally in global stock prices from their pandemic level lows during the preceding 18 months, he said the markets needed a correction and that stocks should be held neutral for the time being.

Kamal stated that there are many reasons to believe things don’t look so dire as they seem in the past few days or this year.

The one thing that is certain, however, is our strong economic paradigm. If you want a job, you can get it; if you want to raise money, you can; if you want to borrow money, albeit at slightly higher rates … you can, and those rates are still historically low.”

Kamal claimed, using Kleinwort’s investment modelling, that the economic environment is still relatively attractive for long term investors. However, most economists still don’t forecast a recession. He also acknowledged that stock prices are still high and momentum is not great.

Sentiment has not reached full-on capitulation levels yet. However, we are not yet at the point where everyone wants to run for their lives. He said that there are still many smaller “buy the dip” feelings, at least in certain parts of the market.

We think there’s still plenty of support economic, so we aren’t reducing risk or sitting on the sidelines. It’s enough to help, in particular, corporate earnings.

The market has experienced significant influence from central banks. U.S. Federal ReserveThe Bank of EnglandAs inflation rises to multi-decade highs, banks are beginning to raise interest rates and tighten their financial positions.

The European Central BankAlthough it has not yet started its hiking season, confirmed the end of its asset purchase program in the third quarterThis has led to an increase in borrowing costs.

There is plenty of space for stock picking

Monica Defend, head of the Amundi Institute, told CNBC on Tuesday that as long as real rates – the market interest rate adjusted for inflation – continue to rise, risk assets will continue to suffer in the manner they have so far in 2022.

She said that it was not about how many hikes there are, but rather the quantitative tightening of financial conditions.

Kamal also didn’t anticipate the massive exodus among investors from stock markets, which would be typical for a prolonged bearish market. Instead, it suggested that many investors would want to re-enter market after volatility has settled down.

She explained that “in order to see volatility temper the market must price in full the forward guidance displayed central banks which isn’t yet.”

Defend stated that earnings could provide an “anchor for investors”, but warned that future earnings reports may show margin compression as the gap between consumer and producer prices grows.

Although it might be challenging to create a wide “top down” investment strategy in the equity market, stock-pickers can still find value and quality stocks that are able to take advantage of rising rates.

Is there anything that could be right?

The turmoil in the stock market is also due to credit and rate selling. However, the safe-haven currency has been moving sharply higher in recent weeks. This shows the increasing bearishness of sentiment.

This low expectation level is a reason for optimism HSBCMulti-asset strategists noted Tuesday in a note that they believe there are opportunities for an immediate rally in developed market bonds and risk assets if the situation changes. Positioning and sentiment have been falling of late.

HSBC is still “firmly at risk” because the indicators of the British lender suggest that there’s a high chance of a growth surprise in the coming six months.

Our aggregate sentiment indicator and positioning indicator are just above the 10% mark. “Historically, such levels have indicated very positive returns to equities vs DM sovereigntys or the likes cyclical vs defense equity sectors,” Max Kettner, Chief Multi-Asset Strategist at HSBC said Tuesday.

The problem is, however that the actual positioning seems very elevated. As an example:
The aggregate positioning index for real-money investors across different types of investments shows they are net long equities and net high-yield but not net short duration.

He stated that this would suggest that, beyond the March short-term relief rally it would take to reverse the downtrend, and would require new economic fundamental support.