The war in Ukraine a complex puzzle and constantly evolving, but there are some key issues to monitor in the economic sphere: starting from consequences of sanctions on the Russian economy and therefore from the times of its resistance, but also from the key role of China, from the repercussions on the European and Italian economy. In all of this, the concern also goes to one's own investments and Antonio Cesarano, Chief Global Strategist of Intermonte SIM, outlines for FIRSTonline the most appropriate portfolio composition in these times of war and rising inflation.
Doctor Cesarano, in times of war, how do you defend savings?
“Let's consider a war scenario that will end (thus excluding a nuclear disaster for example). Whether it's a 10.000 euro portfolio or a 100.000 euro portfolio, whether it's cash or an existing investment, the golden rule is always to move very carefully and gradually - for example using Pacs (capital accumulation plans ed) without panicking and trying to diversify as much as possible” says Antonio Cesarano.
With inflation approaching 6%, the highest since 1995 and growth that risks a slowdown again after recovering in 2021 (+6,6%) from the pandemic, how can an investment portfolio be put together?
“In the current situation, the most appropriate portfolio must first of all be composed of securities linked to inflation, choosing among the many types in circulation, those with short maturities, within 5 years, in the consideration that the inflationary peaks will diminish.
Another part of the portfolio, on the other hand, must focus on fixed-rate and very long-term government securities, bearing in mind that the possible economic slowdown will bring with it a reduction in long-term rates which become the barometer of growth expectations.
For 5-10% of the portfolio it will be appropriate to invest in gold, bearing in mind that if inflation runs high, nominal rates fall and nominal real rates fall even faster because inflation expectations rise.
We can also think of a little equity, even the Chinese one for example, the only market where rates are already being cut and where expansionary policies are being launched”.
Ruble in free fall, stock exchange closed, blockade of the swift circuit: how long will the Russian economy be able to resist the sanctions of the West?
“Putin has certainly been preparing this war down to the smallest detail for some time, including from an economic point of view. A key point is to be found in 2015, in the aftermath of the Crimean war, when the Kremlin began to strengthen its reserves, bringing them to the record figure of 630 billion dollars, in particular increasing the physical gold component to 22%. of the total, about 140-145 billion dollars.
These reserves represent about 35% of total Russian exports (400 billion dollars in 2021), which means that even if – absurdly – Russian exports were zeroed, Russia could hold out for about 4-5 months.
All of this has been taken into account by Putin, including the fact that the Russian people have a much higher tolerance threshold than Westerners. It should also be considered that about 14% of Russian reserves are deposited in China in the form of yuan. As a result, the total share of Russian reserves outside the perimeter of the sanctions would be about 35%, or about 225 billion dollars.
What role is China playing in this scenario?
“China has a key role and is using the classic martial art strategy: to use the strength of the enemy to fight effortlessly. Putin signed a thirty-year agreement with China on 4 February (while the Olympic Games were being inaugurated) for the sale of gas in euros. On the one hand, China wants to send clear messages to Taiwan, where the US, as in Ukraine, would not intervene in the event of an attack, even if this is a hypothesis that remains to be verified. On the other, he wants to try to mediate with Ukraine. The news of a phone call between the Chinese and the Ukrainian foreign ministers came in the last few hours and, also in this case, to send messages of strength to Europe”.
What are and will be the repercussions of the war on the Western economy?
“The first transmission mechanism comes from higher prices for raw materials, gas, oil and fertilizers. Precisely the latter represent the most important slice (20%) of global Russian exports [followed by wheat (18%), gas (17%) and oil (12%)]. They have a direct impact on agriculture and therefore on food products, animal feed, and on the world of transport. On February 2, well before the outbreak of war, Putin stopped the export of fertilizers until April 2022, while China - still in its role as supporter towards Russia - stopped the export of its fertilizers throughout XNUMX”.
Alongside high inflation we also find ourselves having to face the risk of stagnation with a drop in income and employment: how can stagflation influence European decisions?
“All of this is already changing the cards in several institutional tables. On the one hand, the ECB has shelved for now the idea of returning to tightening the monetary taps, on the other also the Stability Pact, temporarily suspended until the end of 2022, will be extended. Furthermore, the entire European Recovery Fund may need to be revised both in terms of amount - given that part of it has already been eroded by inflation - and in the direction of resources".
Which sectors need to find greater development?
“In addition to those directly involved in the production of war elements, the whole world of renewable energies will certainly have to see an acceleration. A process of reducing Russia's energy dependence needs to be started and it will have to be extremely rapid. Therefore, it is necessary to inject more capital to speed up the process, streamline bureaucratic procedures and invest in technologies. Meanwhile, in the immediate future, it will be necessary to resort again to the use of coal which in the meantime has almost doubled in price.
Another sector that will have to improve will be that of Cyber security: as we have seen, with the increase in digitization we will become more vulnerable, and the case of Ukraine with the so-called hybrid war reminds us of this even more”.
