Whilst the City of the Doges is under water, investors are witnessing a rising tide on European equities. This is the fourth consecutive week of inflows on European equities, with a record amount of $1.5 billion.
In the United States, the tidal wave of technology securities has literally inundated the traditional investment markets. At $1,170 billion, Apple’s market capitalisation equals that of the whole of the energy sector put together. As for Disney, its market capitalisation of $268 billion matches that of the five biggest European banks. A record-breaking wave of indebtedness ($13,950 billion) built up among private individuals in America. This indicator needs to be closely monitored, as, at the moment, the heavily-indebted American consumer is the primary driver of US growth.
The CAC 40 also achieved a record tidal range (the difference between low tide and high tide). Its performance with dividends reinvested has the all-important 30% target in its crosshairs.
China also saw its economy navigate through a fairly strong swell. All the most recent figures showed lower-than-expected scores in retail sales (+7.2% vs. the anticipated 7.8%), industrial production (4.7% compared to forecasts of 5.4%) and major investment (5.2% against predictions of 5.4%). Consumer confidence in the Middle Kingdom, however, was affirmed with $1 billion spent online in just 68 seconds on the Alibaba website during Singles’ Day. This ocean of consumerism is in contrast to the tides of people surging through the streets of Hong Kong, which the authorities are finding increasingly difficult to hold back.
Perhaps the trough in the slowdown of the global economy is now behind us. In this almost-ideal scenario (an end to the global deterioration of economic momentum, monetary policy that is still accommodating and appeasement of the political “sea snakes”), investors appear to have understood that there is no longer any option other than to invest in equities, and European equities in particular. This is doubtless how they saw the Française des Jeux (FdJ) IPO, as high demand and the infatuation of French private investors resulted in those in charge of the privatisation to increase the price range substantially.
It is always more enjoyable to have a dip at high tide, when the waves are more invigorating. However, precautions should be taken and investments wisely directed towards under-valued products. Because, as Warren Buffet liked to say, “only when the tide goes out do you discover who’s been swimming naked”.
Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in November 15th, 2019.
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