Years of negative rates may well be coming to an end, with a reversal of investor sentiment for bonds over the last few weeks. In fact, the French 10-year rate is now verging on 0%. However, these years will leave their mark in terms of the extravagance of the monetary policies implemented for the purposes of “Saving Private Capitalism”, lost on the battlefield of excessive debt and driven into the trenches of complex finance. The following examples are illustrations of the current excess: LVMH became the first French company whose market capitalisation passed the €200 billion threshold. Every Ferrari sold worldwide represents, on its own, market capitalisation, per vehicle, of more than €3 million. Saudi giant ARAMCO, soon to be listed on the Tawadul, holds reserves of 227 billion barrels.
Stock exchange indices in the US are breaking record after record. Whilst during the period 1979-2009, European and US indices achieved similar performances (with the S&P 500 at +2524% compared to 2515% for the MSCI Europe), the S&P 500 has gained 233% since 2010, as opposed to 92% for the MSCI Europe. In 2020, the US economy will embark upon its twelfth consecutive year of growth, whereas the eurozone will have faced a double-dip recession since 2008, together with unprecedented financial fragmentation.
After 85 weeks of outflows, European equities have notched up an inflow for the third week in a row, with a record amount of $1.7 billion, a sign that investors have rediscovered their appetite for Europe. Certainly, political risk (and Brexit in particular) appears to be on the wane. In fact, the longer the Brexit negotiations go on, much to the chagrin of Boris Johnson, the softer Brexit will be. Despite all the fears of recession and the risks associated with trade tensions, the global economy has held firm in 2019.
PMIs are recovering a little and some are now starting to play their performance joker, joining in with talk of an end-of-year rally. It’s about time, too, considering the performance of the CAC 40 Dividends Reinvested has exceeded 27%…
Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in November 8th, 2019.
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