FINANCE | 09.23.2020

“In turbulent times, we should play it safe, rather than playing along with the market.”

Alberto Matellán

Chief economist of MAPFRE Inversión

Daniel Badía

Avoiding the mermaids’ lure is tricky, but Ulysses managed it.

Alberto Matellán, Chief Economist at MAPFRE Inversión, uses this metaphor to explain the need for small investors to avoid being lured by the mermaid songs of the market and instead to stick by their advisors, in order to avoid difficulties. “In turbulent times, we should play it safe, rather than playing along with the market,” said the expert in an interview with A Media Sesión on Radio Intereconomía. And, while we are seeing slight recovery, the worsening pandemic could truncate this again: “We are seeing an improvement overall, and the central scenario does not envisage another drop in activity, but there is more uncertainty now than ever.”

The Spanish economy contracted by 21.5 percent year on year, which is the largest decline in the historical series. “This is a monumental figure, but it is better than market consensus expectations. Economic data and GDP point to an improvement, but we cannot rule out that they may deteriorate as the pandemic evolves,” he added.

The upward revision of BBVA’s profit forecasts and its intention to pay out dividends next year provided businesses with a breath of fresh air. Matellán explained that, although banking sector news continues to be negative, there are factors that may provide a boost, such as the high level of provisioning that will serve as a buffer to cover future defaults. Moreover, Europe is still marching to the M&A drum, “top managers are taking steps to try to improve stock prices.”

Amid this high volatility, significant swings are affecting prices for some asset types, such as gold. According to Matellán, the Fed’s change of strategy has made its mark, reopening the debate on the new inflation target — including the possibility of early rate hikes. But the expert recalled that falls from on high, like that of prices per ounce, may even be healthy. “Investors should consider cheap assets, not expensive ones. There are assets that are seeing very strong movements, where profits can be made very quickly, but that’s speculative — it’s dangerous. So we need to look for investments that will let us sleep tight,” he added.

This change of message from the Fed has also had an impact on currencies. In this regard, Matellán believes that the agreement reached in the European Union in May and June “clearly lowered the risk to the euro.”