This week, Alberto Matellán, Chief Economist at MAPFRE Inversión, took part in the Webinar “2021- what vaccine for insurers’ investment portfolios,” organized by insurance specialist Insurance Asset Risk. The expert offered insight into the macroeconomic environment and the investment horizon using Bob Dylan’s song ‘The times, They Are A-Changin’ as the basis for his presentation to explain that times are indeed changing and that a more optimistic feeling is in the air.
Matellán identified the revision of US growth forecasts as a turning point. The Federal Reserve’s latest estimates are for economic growth of 4.2 percent in 2021 along with a predicted decline in the unemployment rate to 6.3 percent, compared to the initially estimated 8.4 percent. “Normally, in a macroeconomic analysis, when forecasts for the current year improve, forecasts for the following year tend to worsen, but this time, they haven’t,” says Matellán.
Meanwhile, debt yields have increased on both sides of the Atlantic. “Part of the market believes that this rebound is due to higher inflation expectations, but I think it has more to do with growth,” explains the Chief Economist of MAPFRE Inversión. “I don’t think yields are going up, I think they are adjusting to their normal levels,” he adds.
Some investors may be nervous about the possibility that this rebound in inflation expectations could trigger a reaction from central banks in the medium-term. “That would only happen if there were a rebound in long-term expectations. Inflation rates are high compared to pandemic levels, but very low relative to the historical average, and not high enough for a hawkish reaction from the Federal Reserve,” he adds.
Matellán went on to speak about liquidity. In his view, this is the main factor behind market movement. “There’s a very high correlation between liquidity and movement in all assets, not just riskier assets,” he explains. Although he thinks this may pose a risk in the long-term, he also thinks it is lending buoyancy to market prices in the short-term. This means that there’s no inflation in terms of the CPI, “but there could be asset inflation.” “This shows that investors have stopped focusing on the pandemic and now have their eye on these other factors,” he concludes.
Participating in the Webinar alongside Matellán were Jeev Muthulingam, Head of Insurance Investment Solutions across NN Investment Partners, Massimo Di Tria, Chief Investment Officer of Cattolica Assicurazioni Group and Sumit Mehta, Head of Investment Solutions at Legal & General.