"Stock markets are expensive and ready for a correction", which however "should not be seen by investors as a sign of a trend reversal", but as "a buying opportunity especially on portfolios with little exposure to risk". This is the opinion expressed by Alessandro Fugnoli, strategist of the investment company Kairos, in the last episode of the monthly podcast “On the fourth floor”.
THE REASONS FOR THE PROBABLE CORRECTION
“There is no shortage of factors that could justify the correction – argues Fugnoli – There is an overbought of the short term, stimulated by the extensive use of options, particularly on the American market. But there are also high valuations, with whatever metric you want to measure them: the ratio between stock market capitalization and GDP (which is very high, at historic highs), the ratio between sales and capitalization or the ratio between price and profits. These assessments discount favorable fiscal and monetary policies and the now imminent exit from the pandemic thanks to the introduction of vaccines. In the short term, however, the world economy will probably slow down: as a result of the new lockdowns, GDP should return to negative in America and above all in Europe. We are moving towards February, which is the most difficult seasonal phase for respiratory diseases such as Covid ”.
THE CORRECTION WILL NOT BE DEEP
In any case, according to Fugnoli, “the correction shouldn't be profound, however, because the problems we have talked about are all temporary. It's hard to imagine that the indices' decline is more than 5%. But for some sectors and stocks that have been particularly speculated in recent months we could also see larger movements. Any correction, however, should not be feared by investors as a signal of a trend reversal. Even in the worst-case scenario, where there should be safety or efficacy problems with vaccines currently in distribution, we must not forget that other types of more traditional vaccines will enter circulation between spring and summer".
THE RECOVERY AT THE END OF SPRING
“The end of the cold season will then be accompanied by the arrival of new expansionary measures, between May and June, thanks to two large-scale fiscal packages already announced by the Biden administration – continues Fugnoli – The first will contain support measures for families, the second will instead concern infrastructures. Any correction should therefore be seen as a buying opportunity especially on portfolios with little exposure to risk. The sectors to be favored will be those linked to the recovery, consumer discretionary, mining, banks, insurance, in general all cyclical sectors and sectors that will benefit from fiscal policies, for example sectors linked to renewable energy”.
HOW TO MOVE
“By the summer we will therefore see new highs and for the second half of the year everything points to a robust global economic recovery – concludes Fugnoli – Then there is another good news for Europe: the end of the phase of weakness pronounced change in the dollar and the beginning of a stabilization phase. For European exporting companies, which make up an important part of European price lists, this will allow them to join the global recovery without further penalizing in terms of competitiveness. In summary, the suggestion is to stay invested and increase exposure in the event of a correction”.
