Stock markets persevere with their extraordinary rally as macroeconomic data point to stronger recovery than expected. However, Alberto Matellán, Chief Economist at MAPFRE Inversión, remains cautious. In an interview on Radio Intereconomía’s A Media Sesión program, he mentions three factors that explain this shift in trend.
The main factor is undoubtedly the surprisingly positive data, but also the enormous liquidity in the market and the fact that certain latent risks, such as the political risk in Europe, are being eliminated following notable agreements reached by the European Commission. However, he believes that “the long-term scenario is unclear.” In this regard, he adds that “companies usually provide a rough guide on their future results, but they are not doing so now, which demonstrates the uncertainty surrounding what is going to happen.”
At the macroeconomic level, one cause for concern in this longer-term scenario is what is going to happen to pricing. As Matellán recalls, there is a clear consensus that we are moving toward deflation, but the expert notes that “in the long-term, the next two to three years, I am more concerned about inflation than deflation, for example asset or currency inflation, which is already occurring.” In his view, “there is a risk of inflation due to the huge amount of money being injected into major economies.” “This does not mean that there will be an inflationary scenario, but I do think that this is a risk that analysts are not really considering, and the risk is there,” he adds.
At the business level, clothing giant Inditex this week posted losses of 409 million euros through April and has postponed special dividend payments by one year. Matellán claims that “consumption will recover more slowly than other aspects of the economy,” and that in the current context, “it is logical for companies to protect themselves from uncertainty surrounding what might happen.” One way of protecting balance sheets is indeed through remuneration policy, but Matellán notes that “it is normal for companies to be more prudent in the short-term, but in the long-term, dividend policy should not depend on what happens throughout a two-quarter crisis, but rather on what will happen over the next ten years.” That is why “this policy should not undergo a structural change because of this crisis.”
Another important issue at European level is the EU’s shielding to prevent foreign capital from gaining a majority ownership of companies. Matellán explains that there are two opposing elements at play here. “On the one hand, we have the free movement of capital and, on the other, the protection of strategic interests.” In his view, at a time when strategic companies such as those in the energy and transport sectors are not highly valued, “it makes sense to protect them in order to protect the interests of European citizens in turn, but this must be a special and extraordinary measure, as free movement of capital must take precedence.”
Finally, and as he usually repeats every week, Matellán recommends that investors “do not change how assets are allocated in light of passing circumstances.”