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FINANCE | 04.16.2020

“It is unlikely we’ll see such extreme falls again”

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Trends in financial markets remain unclear and we are continuing to see volatility. Nevertheless, Alberto Matellán, chief economist of MAPFRE Inversión, points out that “it is unlikely we’ll see such extreme falls again,” compared to those seen in March. For example, the Dow Jones plummeted by 12.9 percent on March 16, the second biggest fall in its 124-year history. In an interview with Radio Intereconomía, on the program A Media Sesión, he explained how “we’ve kind of hit the pause button on the market while we wait to see what the new scenario will look like, the scenario of mitigation and recovery that is.”

Investors are already moving away from a very negative scenario, something which “makes new surprises about the illness and the economy, and therefore extreme falls in the stock market, less likely,” he said.

The International Monetary Fund (IMF) predicts that, as a result of the pandemic, global economic growth will fall by three percent in 2020. A total of 170 countries will enter into recession, in what it has described as “the worst downturn” since the Great Depression in the 1930s.

“Its forecasts are in line with those reached by all analysts. True, if you compare all the estimates made by analysis companies, there are significant differences, meaning we still know very little, but the average is in line with the figures reached by the IMF,” Matellán explains. However, he also stresses that there is consensus on the subsequent recovery. In this regard, the IMF expects 5.8 percent growth for 2021. “I would focus on what they say will come next — rapid recovery in 2021, subject to certain conditions obviously, but conditions that are realistic,” added this expert.

Corporate profit forecasts are similar. Yesterday, JPMorgan and Wells Fargo were the first companies in the USA to report their profits, which had fallen significantly (69 percent and 89 percent, respectively) in the quarter. Matellán recalls that, in 2008, profits fell by between 45 and 50 percent overall, but emphasizes the word “overall,” as he believes it is necessary to differentiate between companies and sectors. As he has pointed out that on other occasions, “when investors choose to invest in a company, what they are buying is its profits for the coming 10 or 15 years.”

That is why, in his opinion, “we should be investing in companies that will come out of this stronger and have a future. Ultimately, we must look to the long-term.” In this regard, this expert is very happy to see sector-specific measures being provided in Europe, as well as in the USA. “You have to see where the damage is being done and take targeted action,” he explains.

As such, he considers that the advantage an investor has is that the economic and financial reality is moving slower than the market reality, which suffers daily ups and downs. “This makes it easier for us, so our recommendation (to investors) is to remain calm and exercise the necessary discipline for each profile.”