The S&P 500 index has fallen 7.42% since the 1er January, while the CAC 40 lost 8.35%. Because the markets trembled at the start of Russia’s invasion of Ukraine: the Paris star index rose from 6,900 to 5,750 points in ten days before recovering. “There is a form of complacency: the indices have returned to their pre-war level, while they are now facing major uncertainties linked in particular to the explosion in energy prices”, analyzes Laurent Denize, investment director of Oddo BHF Asset Management.
Soaring oil prices directly threaten European growth. “A rise in the price of a barrel of 10 dollars represents 0.3 points less on the gross domestic product”, calculates Laurent Denize. Gold Brent is quoted at 100.70 dollars, i.e. 28.7% more than on 1er January, and it even hit a high point at $139.
This development poses a risk of recession in the euro zone. “It’s not our main scenario but the risk is real”, warns Mr. Denize, who has already revised his growth expectations from 4% to 2.5% in 2022 since the start of the conflict. This situation is all the more worrying as it occurs in a context of a sharp upturn in inflation due to the rise in the prices of all raw materials. “Inflation is expected to reach 8% year-on-year this spring in Europe. At the end of the year or the beginning of next year, the European Central Bank should proceed with interest rate hikes to bring it under control, but this will inevitably have consequences for growth”, adds Olivier de Berranger, Deputy CEO of La Financière de l’Echiquier.
The fear of stagflation, that is to say the combination of weak growth and high inflation, encourages managers to be cautious about European equities. “In the event of a further decline, we will reposition ourselves on energy as well as on banks and real estate, in a context of rising interest rates”, warns Laurent Denize.
The theme of inflation remains today the main prism of market analysis. “We are looking for companies capable of passing on the increase in their production costs, linked to that of raw materials, to their customers”, indicates Michel Saugné, director of management of Tocqueville Finance.
Companies with strong pricing poweri.e. capable of dictating their prices, are also sought after by Olivier de Berranger, at La Financière de l’Echiquier: “You have to make a rigorous selection of securities: we favor companies with little debt, whose turnover is not limited to the euro zone and which can increase their prices”. More than ever, the selection of securities is topical.