Citywire Interview – Zurich WM CIO dismisses recession fears

Recent market sell-offs have been valuation-based, not an indication of macro downfalls, Mora Wealth CIO Fernando de Frutos has told Citywire Switzerland.

According to de Frutos (pictured), the recent volatility spikes are consistent with normal market behaviour.

He said: ‘These type of volatility spikes have become more frequent – we have steady markets, then a sharp correction. There may be some technical factors at play, such as high frequency trading, but markets behave like that. They are not smoothly pricing in all kind of variables and factors that affect valuations. This might also be exacerbated by a long equity bull run. Maybe it’s a behaviour that has been forgotten.

‘It’s a question of whether or not it’s a correction that’s justifiable from fundamentals. Interest rates have been increasing over the year, but also corporate earnings. However, third quarter earnings have been less exuberant, and investors are recalibrating their expectations. So I’m sure it’s more a valuation kind of sell-off than a macro sell-off, which would instead indicate that something had gone wrong on the macro side or that the probability of a recession is increasing.’

While the sell-off itself has not pushed de Frutos to change his allocations, he did note that positive real interest rates have prompted him to reduce his exposure to gold.

‘It is very difficult to have an allocation for gold when you see that you have positive real interest rates. In the US, interest rates are increasing and inflation remains well anchored, so we’re having positive real interest rates for the first time in many years. We like gold as a diversifier, but holding gold is a questionable investment at the moment, so we cut it,’ he said.

Fernando de Frutos, MWM Chief Investment Officer

 

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