The first quarter of 2019 marked the low-point of the downturn and an end to global growth forecasts from international bodies and institutes. Now, global economic activity for the next two years is approaching 3%. The recession so dreaded by investors at the end of last year has failed to materialise. Furthermore, it is highly unlikely to occur between now and the end of 2019. 2018 constituted one of the most violent corrections we have seen since the crisis of 2008. If 2018 was hell, then 2019 is taking on the kindly face of an idyllic, heavenly world. The CAC40 with dividends reinvested posted a positive performance of 13.3% for the first quarter of 2019.. It even accelerated in mid-April, with performance exceeding 18%. On examination of the performance of indices, like a kind of sudden, unforeseen resurrection, European equities were eager to more than make up for their sluggishness. During the first quarter, ratings were dominated by growth themes, as a result of falling interest rates, as they have done for more than a decade now (with the exception of 2016).
Since the end of March, the trend in rates has reversed slightly, showing early signs of a rotation towards value themes, particularly those in the banking sector. In this respect, the Deutsche Bank/Commerzbank deal will be a valuable learning experience regarding investor appetite and guidance from the regulatory bodies regarding the appropriateness of the biggest European merger in the sector.
In another resurrection or reincarnation, the State of modern Greece is in the process of extracting itself from economic hell, at the cost of great effort and atrocious social deprivation suffered by her people. The yield of a Greek bond fell to its lowest point since 2005 this week (slightly over 3% compared to nearly 30% at the peak of the crisis). In the Greek myth of Orpheus and Eurydice, Orpheus descended to the depths of hell in search of his beloved. Hades, the Prince of Darkness in Greek mythology, agreed that he could take her back into the light in the world of the living on one condition: that he should not look back. Unfortunately, he did the opposite and Eurydice was lost to him forever.
Greece, and liberal ultra-capitalism too, must not, like Orpheus, be tempted to turn back…towards its former practices (lack of transparency, budgetary drift) and its former model (overindebtedness, complex finances), at the risk of losing everything once again in a crisis that, this time, would be fatal.
Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in April 18th, 2019.
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