INTERVIEW WITH ANTONIO CESARANO, Chief Global Strategist of Intermonte Sim. As the war rages on, what is the best portfolio composition? And how do you protect your savings from rising inflation?
The war in Ukraine a complex puzzle e in continuo divenire, ma ci sono alcuni temi chiave da monitorare in ambito economico: a partire slab conseguenze delle sanzioni sull’economia russa e quindi dai tempi della sua resistenza, ma reed dal ruolo chiave della Cina, slab ripercussioni sull’economia europea e Italian. In all this, concern also goes to their investments and Antonio Cesaranochief global strategist of Intermonte SIM, outlines the most appropriate portfolio composition for FIRSTonline in times of war and rising inflation.
Doctor Cesarano, in times of war, how are savings protected?
“Let us consider a war scenario which will have an end (therefore excluding a nuclear catastrophe for example). Whether it’s a portfolio of 10,000 euros or 100,000 euros, whether it’s cash or an investment already in place, the golden rule is always to move forward with a lot of cautiously and gradually – for example by using CAPs (capital accumulation editor’s note) without panicking and trying to diversify as much as possible,” explains Antonio Cesarano.
With inflation around 6% at its highest since 1995 and growth that is likely to slow down again after recovering from the pandemic in 2021 (+ 6.6%), how to compose an investment portfolio?
“In the current situation, the most appropriate portfolio should be composed primarily of inflation-indexed securities, choosing from among the many types in circulation, those with a short maturity, within 5 years, considering that the peaks inflation will subside.
Another part of the portfolio, on the other hand, must focus on fixed rate and very long-term government bonds, taking into account that the possible economic slowdown will lead to a drop in long-term rates which are becoming the barometer of the growth. expectations.
For 5 to 10% of the portfolio, it will be appropriate to invest in gold, bearing in mind that if inflation is high, nominal rates fall and real nominal rates fall even faster because expectations of inflation rise.
We can also think of a little equity, even in China for example, the only market where we are already lowering rates and where we are launching expansionary policies.
Ruble in free fall, stock market closed, blockade of the fast circuit: how long will the Russian economy be able to resist the sanctions of the West?
“It is certain that Putin has been preparing this war in great detail for some time, even from an economic point of view. A key point is in 2015, in the aftermath of the Crimean War, when the Kremlin began to increase its reserves, bringing them to a record figure of 630 billion dollars, notably increasing the physical gold component bringing it to 22% of the total, around 140-145 billion dollars.
These reserves represent around 35% of total Russian exports ($400 billion in 2021), which means that even if – absurdly – Russian exports are eliminated, Russia could last around 4-5 months.
All of this was taken into account by Putin, including the fact that Russians have a much higher tolerance threshold than Westerners. It should also be noted that about 14% of Russian reserves are deposited in China in the form of yuan. Therefore, the total share of Russian reserves outside the scope of sanctions would be about 35%, or about $225 billion.”
What role does China play in this scenario?
“China plays a key role and uses the classic martial arts strategy: using the enemy’s strength to fight effortlessly. Putin signed on February 4 (at the time of the inauguration of the Olympic Games) a thirty-year agreement with China for the sale of gas in euros. On the one hand, China wants to send clear messages to Taiwan, where the United States like Ukraine would not intervene in the event of an attack, even if this is a hypothesis that needs to be verified. On the other hand, he wants to attempt mediation with Ukraine. In the last few hours, the news of a phone call between the Chinese and Ukrainian foreign ministers and, in this case too, sends messages of strength to Europe”.
What are and will be the repercussions of the war on the economy of the West?
“The first transmission mechanism comes from the rise in the prices of raw materials, gas, oil and fertilizers. The latter represent precisely the largest slice (20%) of Russian world exports. [seguiti dal grano (18%), gas (17%) e petrolio (12%)]. They have a direct impact on agriculture and therefore on food, animal feed and the world of transport. On February 2, so well before the outbreak of the war, Putin stopped the export of fertilizers until April 1, while China – still in its role of shoulder to Russia – stopped the export of its fertilizers for the whole of 2022″.
Alongside high inflation, there is also the risk of stagnation with falling incomes and employment: how can stagflation influence European decisions?
“All this is already changing the cards in several institutional tables. On the one hand, the ECB has for the moment ruled out the idea of tightening the monetary taps again, on the other hand the Stability Pact, temporarily suspended until the end of 2022, will also be extended. Furthermore, the entire European recovery fund may have to be reviewed both in its amount – given that part of it has already been eroded by inflation – and in the orientation of resources”.
Which sectors need further development?
“In addition to those directly involved in the production of wartime items, everyone in the renewables will certainly need to experience a boost. A process of reducing Russia’s energy dependence must be initiated and it must be very rapid. Therefore, more capital is needed to speed up the process, streamline bureaucratic procedures and invest in technology. In the meantime, in the immediate future, it will be necessary to resort again to the use of coal, the price of which has almost doubled in the meantime.
Another sector that will have to improve will be that of cybersecurity: as we have seen with the increase in digitization, we will become more vulnerable, and the case of Ukraine with the so-called hybrid warfare reminds us of this even more. “.