Diversify and save for recession, Sagicor panel briefs investors
Another global recession is looming and appears inevitable, a panel warned on Wednesday during a forum, convened by financial conglomerate Sagicor Group, to brief investors on investment strategies and world geopolitical and economic developments.
World macroeconomic conditions, including ballooning inflation, interest rate hikes and other monetary tightening by leading central banks, as well as worsening supply disruptions caused by new rounds of COVID-19 lockdowns in China and Russia’s continuing assault on Ukraine, are said to be creating the perfect storm for stagflation and recession in the major economies of the world.
This deceleration of economic growth, leading to several consecutive quarters of gross domestic product decline, is believed to have the potential to infect emerging markets and economies in rolling economic declines.
Stagflation, which is otherwise referred to as ‘recession-inflation’, describes circumstances under which an economy is experiencing high inflation while growth is slowing.
Head of global macro research and chief investment strategist at United States-based Bulltick Capital, an investment and wealth management firm, Kathryn Rooney Vera, says a recession scenario is the logical next step in the global economic cycle, with the only uncertainty being the timing of the phenomenon.
“If one agrees that we have hit the peak in this economic cycle, and we are in the descending part of the cycle, then recession is the next step. It could be (in) six, 12, 18 or 24, months. It is difficult to measure,” she said, speaking via video link from Miami.
Noting that central banks do not control the entire spectrum of the inflation dynamic, with much of the drivers being external, the market analyst suggested that among the factors holding back a recession in the US economy was the wide availability of jobs and low official levels of unemployment.
“Recession this year is very unlikely; but recession is an inevitability, in that it is part of the economic cycle. It is hard to imagine a recession happening when you have two job openings for every one person that is unemployed. While the labour market remains that hot, it tells me that business is good,” she said.
Monetary action, including the latest 50-basis point rate increase by the US Federal Reserve this week, and others expected down the line, are unlikely, in her view, to be enough to ward of a descent into recession.
This is especially so, she suggested, with no end in sight for the Russia-Ukraine conflict, the potential for Europe to be driven into recession by a cessation of Russian oil and gas purchases there, and new drastic production lockdowns in China, which she considers the factory of the world.
A lot of uncertainties
Jamaica’s central bank appeared non-committal on the matter of a looming recession or its inevitability, with Bank of Jamaica’s Senior Deputy Governor Dr Wayne Robinson preferring to paint a positive picture of a post-pandemic recovery, even while drawing attention to the ever-present risks to further inflation and new economic disruptions.
“There are a lot of uncertainties, the outlook is very foggy. There are downside risks, but we expect the recovery to continue, and expect growth for the current fiscal year to be about two to four per cent,” said Robinson, echoing the central bank’s now-usual upbeat tone.
He pointed to tourism arrivals being at 73 per cent of pre-COVID levels, positive spillovers into transport and agriculture, construction continuing to boom, business process outsourcing being strong following early COVID-era jitters, and bauxite plant Jamalco expecting to be back in production by June this year.
“When you see all the data coming out of Statin, it is clear that the economy is on a recovery path,” the central banker said. Statin is the Jamaican government’s statistics agency.
Meanwhile, Rooney Vera and Sagicor Group Jamaica President and CEO Christopher Zacca are agreed on recession-proofing advice to investors and consumers, both recommending diversification into equities that tend to outperform stagflation, including utilities, energy, commodities and healthcare stocks, as well as real estate. The Bulltick Capital analyst went further to recommend gold and digital assets, while Zacca preached the virtues of saving in challenging times.
“At Sagicor, we have realised that as leadership, we have to be nimbler, rely on technology more, and keep our team engaged. Hybrid work is here to stay and we have to build social capital. Management that is plugged into its team, plugged into technology and agile, is our approach,” Zacca said of his company’s response to prevailing local and global conditions. Sagicor Group comprises various businesses spanning insurance and pension management, investment banking and wealth management, commercial banking, hotel ownership, and real estate.
He added that while inflation — which rose again in March to an annual rate of 11.3 per cent — is eating away at the resources of fixed-income earners such as pensioners, he is confident in the ability of businesses to be resilient, and in the capacity of the central bank and the government to guide the economy.
“We have been there before. The financial sector is strong. We have kept debt to GDP at manageable levels, exited COVID with strong capital adequacy, good profits, and a strong entrepreneurial class,” Zacca said.