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Morgan Stanley Wealth Management recently published “On the Markets: Selective Navigation, Not the Chase,” detailing their views on selecting certain companies/sectors, instead of buying indices, amongst other many great pieces of research; we encourage you to read their highly informative Report (link in References).
While Giza Capital broadly agrees with the various economic outlooks detailed in the Report, we have a difference in opinion when it comes to going long certain ideas. We believe that even picking historically-based “safer sectors” warrant extreme caution, during an unprecedented liquidity crunch by a very hawkish Fed policy.
Investors may want to hedge index volatility (to account for contagion risk and be market neutral), if they’re going to go long specific names/sectors; as financial conditions tighten, this puts enormous pressures on earnings across the board, and even historically “safer” sectors going into a recession may not be immune to unprecedented financially tight conditions.
Credit (we are assuming is corporate, not sovereign), has to be picked carefully due to duration and balance sheet impairment risks as interest rates rise going into/during a recession.
As the Dollar wreaking ball continues its march throughout Asia/EM, equities in those regions are high risks, unless the currency risk is hedged.
Investors must be careful not to get their hand crushed by the liquidity-crunch steamroller, driven by Fed Chair J-POW!, while reaching for yield/return.
^Above is NOT investment or financial advice.
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