China steps up to the new global economic context

Emerging countries are once again on the tips of investors’ tongues. After its central bank announcement indicating a more favorable position to the market, China’s stock markets surged ahead by close to 9%. With the numbers in positive territory, Chinese fixed income has become a safe harbor for many, offering the possibility of long-term stability. All that glitters is not gold however, and during the first few days of March, the Asian giant dropped back almost 20%. Although these markets may turn into an opportunity for investors, this see-saw ride, which is not the first that we’ve seen, has revealed the high volatility inherent in the market there.

It’s well known that China’s position in the face of the Russian invasion of Ukraine is decidedly neutral, and up to now, it’s been difficult to ascertain the degree of involvement of its economy in the conflict unfolding in Eastern Europe. Beyond all this, Ismael García Puente, investment manager and fund selector at MAPFRE Gestión Patrimonial, acknowledges that, although "we are in a difficult environment", the stock markets would be discounting not only the war, but also the latest news coming out of China on the increase in COVID infections: “There are a number of negatives factored into prices already”. Experts are linking the instability in the indices with the latest price movements, which have been driven more by speculation and panic than by specific criteria.

Arbitrariness in investment decisions has also spread to European equities which, after kicking off the year with predictions of green shoots, have now fallen since February 24. "Until we get a final agreement between Russia and Ukraine, it’s unlikely that we’ll see greater cash inflows to the European stock markets," Ismael underlined, while at the same time recalling that  “European asset valuations are more attractive than others out there”.

For the moment, the main indices have recovered part of the ground they conceded and are once again close to pre-war levels (the IBEX35 has passed 8,400 points). But nothing should be taken for granted. There is still one element that continues to pose a risk to the economy that has not yet been controlled for: price levels. In fact, this factor has caused central banks to hold firm on withdrawing stimuli or raising interest rates. MAPFRE Inversión’s chief economist doesn’t consider double-digit inflation as an outlandish prospect “as long as problems persist with energy, food and metals”. This whole period of instability, which will largely depend on the resolution of the conflict, has highlighted the importance of oil at this time, not only as a source of energy, but also as a financial asset: despite not knowing how high the price of a barrel may go (in the space of a week, it has dived from 130 euros to below 100), “it’s acting as a refuge store of value”, affirms Alberto Matellán.

In the face of uncertainty, prudence should be top of mind. Panic can often overcome less-experienced investors, so much so that Matellán recommends "not making changes until the noise abates." “In times of war, the subsequent recovery has been relatively quick, so there’s no point in making changes at this time. If portfolios are well defined, the falls we have seen would be within the normal range”, states the economist.