If a recession does hit the global economy this year, one chief investment officer believes the markets have already priced it in.
Bank of Montreal’s Global Asset Management Chief Investment Officer Sadiq Adatia told BNN Bloomberg in an interview on Monday that while markets may remain choppy in the first half of this year, a return to balance is already being seen despite economic uncertainty.
“The market has already priced that in (a short-lived recession), and is now looking past that,” Adatia, said.
While there has been a pullback in stocks because of persistent inflation, a decline in earnings and the risk of an economic slowdown, he points out that the anticipation of a slowdown in interest rate hikes will offset the losses.
“We’re going into a stage where the Fed [U.S. Federal Reserve] and the other central banks are slowing down and about to pause,” he explained.
Investors who stay in the market for the long term will stand to benefit from a possible rally on the back of improved economic conditions and the expected pause in rate hikes, he added.
“You could play this defensively for the next three to six months on the exception of earnings decline, but if you get that pivot (in interest rates) or any positive news coming on the economic front, the markets will have such a big upside movement— you don’t want to miss that,” Adatia said.
In terms of portfolio positioning in this environment, Adatia has a neutral position in both equities and bonds, but is more overweight on bonds than cash.
Regionally, he is neutral on the U.S. markets but underweight on Canada, while being overweight in the emerging markets on the hopes that the China re-opening will drive some consumer demand.
“You don’t want to try to time the market, you want to get into it knowing there could be some more softness, but in the long term, 12 months or even longer, it looks quite strong,” he stated.
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