Quintet Private Bank sees “significant long-term opportunities” in a world that has experienced multiple ‘black-swan’ type events – Covid-19, the invasion of Ukraine and a miniature version in China’s decision to lock down Shanghai in late March. Presenting the firm’s outlook, Ilario Attasi, group head of investment advisors, and Nicolas Sopel, senior macro strategist, said investors can still find opportunities in tech stocks, among others.
The Luxembourg-based European wealth management firm held its press event in conjunction with the release of its midyear Counterpoint forecast for the global economy, financial markets and key asset classes. The bank said it expects worldwide growth of 3.3% in 2022, (down from 5.8% in 2021) and global inflation at 7.8% (up from 4.6% in 2021).
With the current level of market volatility, with the Ukraine war, energy insecurity, ongoing supply chain disruptions and lingering COVID impacts, Attasi said that “it has become really important to look at what is happening on the ground, from a company point of view, what is happening to the consumers.”
Focus on quality
Quintet, he said, is focussing on quality when investing in companies. “Quality means companies who have the financial flexibility to cope with a crisis situation and with a changing world,” he explained. “We really look at the quality of the balance sheet, we really look at the capacity of companies to invest and to be in the sectors that we like.”
As examples of companies having such resources, he mentioned technology firms such as Amazon, Alphabet, Apple or Microsoft, as well as investment firms such as Berkshire Hathaway. He approvingly described Amazon’s ability to build 15 million cubic metres of storage capacity in order to cut down on delivery bottlenecks, noting that it took 30 years for Walmart to build that much.
In Quintet’s view, technology firms will provide the answers that governments and companies can give to the world’s economic troubles. He noted that technology stocks haven’t been doing well of late on the stock market. “As long term investors, we still believe that there is a lot of opportunity lying in the sector,” said Attasi.
Addressing frailties
A major side effect of the instability will accelerate efforts by governments and companies to “take active steps to address the frailties exposed by decades of offshoring and imbalanced economics.” Attasi explained that “we have been for the past 20-25 years in a world of globalisation and delocalisation.”
But since about 2016, according to Sopel, there has been a move toward “exactly the opposite trend,” with reshoring, re-localisation and de-globalisation.
“We want to recreate robust and solid supply chains more locally, instead of relying on some countries that would be less reliable from a political point of view, from a stability point of view, said Attasi. He recalled that the reason we went into such countries in the first place was because they provided cheaper production, but disruptions have focussed attention on the risks of depending on faraway production. This will, he said, benefit companies in industrial sectors, along with real assets, real estate and private infrastructure.
In the short term, the need to secure national energy supplies from exposure to countries who used their supply as a foreign policy lever has led to both fossil fuel and clean energy themes to outperform the market. In the longer term, Attasi said, investors will increasingly focus on cleantech as enthusiasm for fossil fuels diminishes.
Investment needs also present opportunities
The return of production from the far East, the green transition and the need to secure energy supplies and national borders all involve significant expenditure, which will inevitably structurally increase inflation. On the other hand, the need for all this investment, opens up opportunities for financial centres such as Luxembourg.
While central banks have taken recent steps to try to fight inflation, for example the US Federal Reserve increased rates by 75 basis points and is talking about introducing a similar hike in July, Sopel explained that central banks should be able to slow the pace of tightening next year. He pointed to the stable oil price and wage growth deceleration in the US.
Given the long-term rise in spending, however, It’s unlikely that inflation will drop to the prior two percent central bank target. “Over the longer term,” Sopel said “any inflation coming from the green transition and more local supply chains is unlikely to be met with significant rate rises.”