Recession: a question of when
Following a strong rebound in 2021, the global economy now looks to be heading towards a marked slowdown amid a confluence of threats.
The risk stems from the need for central banks to slow growth sharply to cool inflation. Inflation is still rampant across much of the developed world, driven by supply-side shocks, including supply-chain disruption and the war in Ukraine, and pent-up demand following Covid-19 lockdowns. Sharp increases in interest rates and balance sheet run-off are the banks’ principal tools.
Unemployment will need to increase in order to temper robust wage growth. Bankruptcies may also result from the drop in demand.
Once growth has slowed and inflation looks set to decline back to central bank targets, interest rates will revert towards pre-pandemic levels. Nonetheless, rates will likely settle at higher levels than in the period from the Great Financial Crisis to the end of the pandemic. Several of the factors that created the prior low inflation, low interest rate world have become less forceful, particularly globalisation.
HIGHER, THEN LOWER RATES
Against this backdrop, investors may want to prepare portfolios for further pressure on risk assets and seek to diversify their holdings. Here are our suggestions.
Protection against inflation over time
Low volatility equities
Enhance diversification and lower portfolio sensitivity to interest rate moves
A flexible approach to navigate a range of scenarios
Sustainable euro bonds
Benefit from high-quality euro issuers that demonstrate superior ESG profiles
BNP Paribas Europe High Conviction Bond
Tap into secular trends that can offer long-term growth potential
BNP Paribas Disruptive Technology
BNP Paribas Energy Transition
BNP Paribas Health Care Innovators
ESG = Environmental, Social, Governance
Past performance is not indicative of current or future performance.
Any views expressed here are those of the author as of the date of publication, based on available information, and subject to change without notice. This material does not constitute investment advice.
Investments are subject to market fluctuations and the risks inherent in investments in securities. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial investment. There is no guarantee that the performance objective will be achieved.
Following the new Sustainable Finance Disclosure Regulation (SFDR) that came into force on March 10th 2021, BNP Paribas Energy Transition is categorised under Article 9 and BNP Paribas Global Inflation-Linked Bond, BNP Paribas Sustainable Global Low Vol Equity, BNP Paribas Sustainable Multi-Asset Balanced, BNP Paribas Europe High Conviction Bond, BNP Paribas Sustainable Euro Bond, BNP Paribas Disruptive Technology and BNP Paribas Health Care Innovators under Article 8.
Under this new regulation, financial entities such as BNP Paribas Asset Management who sell products into the EU are required to classify the products they manufacture or advise into three categories: Products with sustainable investment objective (Article 9), Products promoting environmental or social characteristics (Article 8) and Non-sustainable products (Article 6).
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
BNP Paribas Asset Management seeks to integrate environmental, social and governance (“ESG”) factors into all of our portfolios as a means to mitigate certain short, medium and long-term financial risks, identify better long-term investments, and encourage more responsible corporate behaviour. We will never subordinate our client’s interests to unrelated objectives. Certain issuers and industries are excluded from our actively managed portfolios based upon our view of their ESG performance and risk profile. As a result, we may pass up certain opportunities when these excluded issuers or industries are in favour. Due to significant gaps in disclosure regimes around the world, we may need to rely upon voluntary disclosures by issuers, which are often not audited. We therefore may not have consistent access to complete, accurate or comparable information about the ESG performance of our holdings. Please consult the applicable offering document for more information about the specific ESG strategy employed by each investment strategy since a given strategy may not have specific ESG guidelines, and investments are not limited to securities that are ESG compatible.