FINANCE | 12.9.2020
“Central bank intervention reduces the informational value of quotes”
Chief economist of MAPFRE Inversión
After a spectacular November, stock markets hit the brakes in the first days of December.
“It’s normal”, points out Alberto Matellán, chief economist at MAPFRE Economics, in an interview with A Media Sesión on Radio Interconomía, “because maintaining November’s pace was unrealistic.” Having said that, and given the improved macroeconomic expectations for 2021, “it’s reasonable for professional investors to increase exposure to equities for next year.” And he clarifies: “I am referring to professionals, because retail investors must make decisions based on their personal objectives, and not according to the timing of the market.”
In Matellán’s opinion, humility should be the guiding light when deciding to invest. “The retail investor has to accept that there is a lot going on that they are not privy to, and so they shouldn’t overextend themselves. That’s why it’s important to be properly advised.” “Good investors are few and far between and they don’t last long. For me, a good investor is a market professional with a correct world view.” he adds.
These recommendations come in a week in which the Brexit negotiations have been reactivated, although according to Matellán, they have dragged on for so long now that investors hardly pay attention anymore. Added to this is the meeting of the European Central Bank, where the consensus seems to favor the announcing of more financial stimuli. While “it could improve economic forecasts for next year, given that the latest data haven’t been as poor as was envisaged, the strength of the euro is putting downward pressure on inflation,” notes Matellán. “The strength of the euro has a double impact: it hurts exports and puts downward pressure on prices, with the latter being the most important thing now because it can lead the ECB to react,” he says. He also cautions that part of the euro’s rise is due to the weakness of the dollar, which translates into more liquidity around the world. “This can be a long-term problem, but it’s positive in the short term for the economy, and especially for Latin America where many companies have significant exposure,” he adds. However, the MAPFRE Inversión economist is ruling out a deflationary scenario.
The aggressive reaction of central banks, specifically the ECB, may lead the Spanish 10-year bond to negative returns. “It’s highly probable, as was the case in France or Germany. In October and November, the ECB bought more debt than was issued, and this can be repeated in several months of the year to come, so it would be normal to have negative rates. The problem here is that these returns lose their informational meaning. Central banks are printing massive amounts of money and buying assets, and informational content is being lost, and this is a tragedy for the day-to-day lives of professional investors,” he concludes.