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«There has been a universal diagnosis error regarding the global economy, because everyone – from central banks, to economists and to the major investment houses – had predicted a recession in Europe and the United States, just as they had previously erred in indicating a terminal level for the interest rate rise cycle which is much lower than what actually occurred”. Enzo Corsello’s words are not an indictment against the financial community and the always difficult job of making forecasts, the head of Allianz Global Investors’ activities for Italy intends rather to get to the root of the reasons that transformed a unanimous call in a resounding fiasco, draw lessons for the future and adapt the composition of investors’ portfolios accordingly.
Having applied analysis criteria typical of a normal cycle to one that was not normal is the origin of the erroneous forecasts. «Covid has changed the cards on the table – indicates Corsello a The sun 24 hours – first determining a closure of the economy for reasons of force majeure such as to repress demand, in particular that aimed at services, and then favoring its subsequent explosion at a moment, that of the reopening, in which the supply suffered the problem of bottlenecks in the supply chain”. Ultimately, this is where the dynamics that brought inflation out of control and triggered a previously unseen reaction from the central banks arose, but the conditions also arose to bring prices back towards the target without creating unemployment (contrary to what would be suggested). theoretically the Phillips Curve) thanks to the imbalances on the labor market that had been generated and making the economy unexpectedly resistant, at least in the United States.
According to Corsello, the ultra-expansive maneuvers implemented by governments also contributed to creating an “absolutely artificial situation” and the comparison between 2020 and 2024, both characterized by elections in the USA, is significant in this respect. and not only. «Today, like four years ago, we must consider the doping effect of fiscal policies that are linked to the aggregation of consensus in an electoral key», warns the manager of Allianz GI, also inviting us to wait for the outcome of the Biden-Trump duel and the subsequent indications of the winner to understand if the world’s largest economy will really turn towards the hypothesis no landing which now receives the greatest support for avoiding recession.
The scenario that emerges for the future generally seems to be characterized by lower potential growth than in the past and at the same time by a higher level of inflation and rates: an environment that Corsello defines as “para-stagflationary”, which cannot help but also affect investment choices «In a similar situation – he specifies – the main of all the inverse correlations on which the portfolios were built, that between shares and bonds, no longer works and it is necessary, so to speak, to diversify the diversifiers».
The general idea is certainly not to sacrifice bonds, but to hold a portion of the fixed income portfolio in products to be held until maturity to take advantage of high coupon yields, without aiming for capital gains that are now difficult to achieve. However, the amount to be invested in bonds with a view to diversification must at the same time be revised to the advantage of other unrelated assets about which Corsello has clear ideas: «I would suggest looking at industrial raw materials and oil, also purchasing shares of companies that operate in the sector in order to avoid the technical problems linked to direct investment in commodities, I also consider other safe haven assets such as the dollar and gold”. The yellow metal, defined as an “ancestral reserve of value”, in any case seems destined to shine again in the vision of Allianz GI, which specifically links its positive vision for the next 12 months “to the framework of geopolitical tensions and increase in public debt and defense spending, as well as demand from central banks in emerging markets.”
: «Dollar, gold and raw materials: the portfolio needs to be rethought»){kind=link}