About 64 per cent of experts surveyed by Natixis Investment Managers believe that a recession is a distinct possibility in the next six months and 24 per cent see a recession as being inevitable.
The survey of strategists, portfolio managers, research analysts and economists at Natixis and its affiliated investment managers, found that nine out of 10 expect central bank policy will be the biggest market driver in the remainder of 2022 as recession fears grow.
“The word recession is casting a long shadow over the markets, but in some ways the only way out of this inflationary environment is for central banks to trigger this recession,” suggested Natixis Investment Managers Solutions head of global market strategy Mabrouk Chetouane.
“Then we’ll come out on the other side of the inflationary shock, and the markets could then rebound.”
Inflation was ranked as the biggest market risk for the second half by seven out of 10 respondents and 36 per cent viewed the level of risk due to inflation as being ‘10 out of 10’.
According to the strategists surveyed, energy prices (76 per cent), food prices (64 per cent) and wage hikes (61 per cent) are set to be the top three drivers of inflation.
Central bank policy decisions (52 per cent) and supply chain issues (46 per cent) were also highlighted as key inflation drivers.
“Policymakers have many tools at their disposal to address inflation, and given the challenge of achieving the right timing for policy implementation, the margin for error is slim,” Natixis noted.
“For many, the question remains as to whether these efforts will thwart inflation, trigger a recession that could last two to three quarters, or result in stagflation that lasts for years.”
However, less than one in four of those surveyed believe that inflation will remain persistently high. Other major risks for markets in the second half identified by the experts include geopolitics (65 per cent) and energy prices (47 per cent).
Meanwhile, the outperformance of value stocks that has emerged due to pandemic-driven disruptions is expected to continue for at least a few more months according to 58 per cent of respondents.
Around 24 per cent believe that value will remain on top for a few more years while 19 per cent think that the trend of value outperformance has already ran its course.
“The opportunity set is shifting rapidly,” commented Chris Wallis, the CEO, CIO, and senior portfolio manager at Natixis affiliate Vaughan Nelson Investment Management.
“The new environment is creating idiosyncratic opportunities that are more attractive investments than the broader indices. These opportunities can be found across multiple sectors.”
