The world’s economy has survived four divorces on the trot; the first being the disparity that now exists between the “Trumpian” vision and the rest of the world regarding the need to impose customs barriers in a previously global world. The second is the one that will see Britain leave the European Union in a no-deal, no-vision Brexit. The third involves the relationship between currencies, which is now governed more by decisions made by the central banks rather than by economic equilibrium (purchasing power parity). The fourth is the divorce between industry and services, and digital services in particular, which sees a genuine transfer of power between major digital companies and the industrial groups that are fighting for survival. These divorces have not prevented the US S&P 500 index reaching the historic peak of 3000 points. Investors, mainly US investors, still believe in companies that create value, even though this is undoubtedly more challenging for them than it has been in recent weeks.
In Europe, too, European equities have performed well so far this year. In the wake of these four divorces, the funeral is for global savings, or rather for secured savings. The low-rate policies of the central banks have killed off the yields of future pensions and distorted the assessment of asset valuations. But in order to render the body of the deceased more presentable, the banks have conducted some expert embalming to ensure they went to the grave happy and smiling. Under the guise of protecting today’s economy, they deliberately presented their accommodating monetary policy as essential and effective. A large proportion of bonds issued in “safe” countries are now offering actual rates of return that are in negative territory. When the monetary cycle inevitably turns full circle, savers will unfortunately already be buried and impossible to rouse, as the living dead only exist in bad horror films and Michael Jackson videos.
Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in July 12th, 2019.
This promotional document is a simplified presentation and does not constitute a subscription offer or an investment recommendation. No part of this document may be reproduced, published or distributed without prior approval from the investment management company.
DNCA Investments is a trademark held by DNCA Finance