Economic experts see 80% chance of U.S. recession

Steve Brice, chief investment officer at SC Group speaks during the Seoul Money Show 2023 held in Seoul on May 11. [Photo by Park Hyung-ki]

Investors should invest in recession-proof stocks as the current key indicators are reinforcing expectations that the U.S. economy could slide into a recession and could lead the dollar to weaken, according to financial experts at home and abroad said at a conference.

This is an investment strategy for the second half of this year economic offered during the Seoul Money Show 2023 held on Thursday in Seoul, under the theme of “The Age of Common Sense Destruction, New Normal in Investment.”

If you look at the U.S. consumption index and the inverted yield curve, which occurs when interest rates on long-term bonds fall lower than those of short-term bonds, there is an 80 percent chance that the U.S. economy will slip into a recession within 12 months, said Steve Brice, chief investment officer at SC Group, a British multi-faceted engineering company, during his keynote speech at the event under the theme of First Economic Recession in 40 Years! Big Wave!

If history is any guide, an economic recession will cause corporate profits to decline by an average of 11 percent and SC is projecting an even steeper decline of 20 percent to 30 percent, Brice said.

Oh Kun-young, a senior official at Shinhan Bank Co., one of Korea’s largest banks, also expected an economic downturn in the second half of the year due to high levels of inflation and corporate restructuring. “We should be wary of the possibility of fluctuations in the financial market,” he said.

They also raised the possibility of an economic recession ending the era of a strong dollar. As the risk of a recession grows, U.S. Treasury yields are stabilizing downward, said Brice. In particular, as the Bank of Japan is showing signs of changing its monetary easing stance these days, the value of the Japanese yen could strengthen up to 125 yen per dollar over the next 12 months, he said.

Brice also predicted that the Korean won could strengthen against the greenback in line with a strong yen.

Brice also gave advice for retail investors investing in foreign stocks. Given the different macroeconomic conditions between countries, those investing in stocks in the U.S. and Europe, which are highly likely headed for a recession, should pay attention to recession-proof stocks, said Brice. In particular, it is worth paying attention to the healthcare sector as the earnings volatility of companies in the sector is small and their price-to-earnings premium is not high, he said.