Three Questions to BCA Research Chief European Investment Strategist Mathieu Savary “Stocks Are More and More Attractive”-March 23, 2022 16:45

(AOF) – Mathieu Savary, Head of European Strategy at BCA Research, said stagflation (economic slowdown and high inflation) that will involve Europe in the coming months due to sharp rises in commodity prices, lower confidence and worsening financial conditions. Is predicting. Energy prices remain the main force weakening European wealth and the euro. But he is optimistic towards the end of the year.

1) Public institutions supported the economy during the Covid period. What can they do this time in the face of the risk of stagflation?

There is less room for public sector maneuver in the short term. However, inflation is mainly caused by soaring commodity prices. However, the evolution of raw material futures curves suggests that soaring energy prices are only temporary. Inflation should slow if wage and real estate growth remains restrained in this context. In fact, the eurozone is expected to peak at 7% to 8% this summer and then recede. Meanwhile, core inflation should hit a high of 2.8% to 3.2% in the second half and then recede.

In terms of growth, expected declines in energy prices will mechanically increase household purchasing power and thus consumption. We also anticipate increased investment by European companies. Finally, the stimulus Beijing has decided to support China’s growth will benefit the European economy in the second half of this year. In the medium term, after 2023, European growth can be expected to increase public spending related to the region’s need to reduce its dependence on Russia and strengthen its military defenses.

2) What is your core short-term scenario?

In the short term, Germany is very likely to experience a recession at the beginning of the year. After all, Germany’s growth was already negative in the fourth quarter of 2021. Growth in Europe will be very weak in the first quarter and perhaps early in the second quarter. Moreover, inflation will not slow until this summer, perhaps until the underlying inflation declines. This makes the first few months of the year difficult in Europe. However, we recognize that this slowdown is temporary and are preparing for a clear recovery by the end of the year.

3) Which assets and which areas are prioritized

Stocks are becoming more and more attractive. Expected commodity easing should gradually reassure investors. Historically, the outlook for inflation recovery and slowdown has been accompanied by multiple valuation increases and EPS expectations. Sure, this asset class remains volatile until a ceasefire in Ukraine, but energy market trends show that the worst is behind us. The stock market prioritizes finance over other markets. They suffer significant discounts related to exposure to Russia and fear of stagflation. This discount creates great buying opportunities. Swedish stocks are especially attractive. In addition, they often benefit from Chinese stimuli. In the fixed income market, high yield bonds should benefit especially from the prospects for economic improvement.

Interview with Pierre-Jean Lepagnot