Fynsa
The financial markets have performed very well this year, with the S&P500 up 14%, and the Nasdaq 30%, but with the Dow Jones up just over 2%, showing how the real and banking sectors have continued to suffer from the level of interest rates that central banks have had to charge to try to control inflation. Although we are nearing the end of the contractionary cycle by central banks, core inflation continues to be under pressure, calling out for a underlying inflation continues to be under pressure, and it is striking how the main convergence in inflation is given by energy and food prices, but with practically full employment in these economies.
Fortunately, these risks are more in the retina of investors than on the buy buttons, with portfolios that are still very conservative given the tremendous risks we have just gone through, especially in the banking sector, where we saw the authorities act "all in" from the beginning to avoid a new 2008. For the time being, we remain in calm mode with a Vix in the 13 zone, levels not seen since before the pandemic.
China was one of the market's main bets for this year, without finding the necessary traction, seeing weakness in its figures that has taken the Yuan to levels of 7.20, depreciating by 4% so far this year, accelerating its weakness since April this year, seeing that the investment thesis was not developing at the expected speed.
On the other hand, emerging markets ex-China have performed well, with Latam standing out but not Emerging Asia, calling attention to the fact that, although the main catalyst for these economies is China, they have decoupled in this way. One explanation that comes to mind is to see the popularity of the current governments at a minimum, which has translated into lower country risk across the board. Brazil, for example, when measured by 5-year CDS, starts at levels of 260 for the year and is currently in the zone of 178, minimum levels since 2021. In the case of Chile, the CDS This explains the radical change both in terms of fixed income spreads, as well as the IPSA Outlook, which although it has already risen by 9.5%, still looks quite cheap, which augurs a good performance for the rest of the year. In the case of Colombia, the movement was even more radical, with the 5-year CDS falling from the 350 it reached in March, to the current 237, and it is clear that it still has a long way to go, as the government is also struggling to carry out the most radical reforms, as can be seen at the local level.
With the understanding that the contractionary cycle by central banks is nearing its end, and how disinvested investment portfolios remain, it is quite likely that we will have a good performance in the second half of the year in terms of returns in investment portfolios, both in fixed income and equities, where the recommendation would be to continue buying the weaknesses in price on volatility rises. in terms of profitability in investment portfolios, both in fixed income and equities, where the recommendation would be to continue buying the weaknesses in price on volatility rises, which of course will continue to be very strong in the second half of the year.The recommendation would be to continue buying price weaknesses in volatility rises, which of course will continue to occur, but they should not be more than buying opportunities. Something that would change this instance would be an energy or food shock, but as long as this does not happen, we continue with this thesis.
