Global Macro: Related investment solutions in the face of the threat of stagflation? –April 25, 2022 12:14

(Photo provider: Unsplash-)

(Photo provider: Unsplash-)

Inflation recovery has been priced by financial firms for several months. Individuals are also feeling the impact of soaring product prices. Therefore, this term is something that everyone says. But another word appears in the stock market analysis: stagflation. That is, sustained inflationary pressure with slowing growth.

Stagflation: a new threat

Earlier forecasts announced group shots in the United States, China and Europe. Even the slightest lead of the latter. Stephen Fonslon, Director of Commercial Distribution at JP Morgan Asset Management, said: “But what happened in Ukraine swapped cards,” he says.
For several years, H2O Asset Management has already considered price increases, but it is in a growing environment. Will this change in context change the position of this inflation-promoting and growth-promoting?

“The only problem that arises is the period of this shock to the product,” believes senior portfolio manager Loic Kadiu. This evokes two scenarios. The first was the suspension of Russian gas purchases by Europeans, leading to a recession similar to the period 1973-74. “I only have cash and raw materials. Even bonds wouldn’t help,” the manager said. Nevertheless, it supports a scenario of temporary shock and return to the previous world.

However, although stagflation does not occur, it may determine the behavior of market participants. Today, the Fed is forced to accelerate interest rate hikes with a final interest rate estimated at 3%. “So we deal with extremes, that is, without rate hikes … extremes, and this rise in interest rates causes a shrinking financial position,” said Sunny Asset Management’s Absolute Return Management Director. Etienne de Marsac says.

Global macro strategy as an answer?

Faced with this situation, some management companies are pushing for a “global macro” approach that consists of betting on macroeconomic development using leverage effects. But how are these funds managed? And how do you use them? JP Morgan AM’s Stephen Fonslon recommends them as a portfolio building tool.

“It’s less intuitive and attractive than some funds, but it’s very useful in situations where bond diversification doesn’t work,” he says. With the disappearance of risk-free returns, uncorrelated and diversified investments are required to achieve performance. In this context, alternative management should be used to pose long-term risk to equities while adapting to different risk profiles. And since these funds thrive on diversification and volatility, context helps with this.

Another interesting feature is that global macro funds seek absolute performance over time rather than relative performance. “Our approach consists of finding cross-cutting themes upstream, independent of the cycle,” said Etienne de Marsac of Sunny AM. Here, the allocation of allocations is deducted from the rest, not the criteria at the time of entry of the fund. “The Global Macro Fund is very simple. It’s global and macro. It summarizes H2OAM’s Loïc Cadiou. But the manager admits that he can’t explain the contents of the portfolio in one sentence.” In effect, you Buying expertise. It’s like when you buy a car: you see achievements, history, ways of doing things … so you buy the permanence of the investment process. Easy. When it’s difficult, “he explains.

In short, marriage for bad as well as good. Therefore, it is important to choose drivers carefully, not just the global macro strategy itself.