With the ECB’s recent announcements, German 10-year sovereign spreads are getting dangerously close to zero. European economies seem to be plunging headlong into Japanisation and, consequently, financial stagnation. And so the sovereign bondholder will have a part to play in the trend towards the redistribution of wealth initiated by governments under pressure from populist parties or under threat from pre-insurgency movements. 

In France, €1,700 billion are now invested in the network of funds denominated in euros for sub-inflation salaries. The majority of investments in these products are flowing into government bonds (particularly French ones). These instruments have their virtues, particularly when rates are higher, but also because they are a surrogate for money-market products that are currently not performing and they carry a capital guarantee that is enshrined in law (although that could change…). All the same, we might wonder about the future of a savings scheme that actually only funds an impoverished government that makes income the cornerstone of the fate of national wealth creation. A patriotic quirk, financial schizophrenia… more than that, the behaviour of the French investor is at odds with their general opinion of those in power. The stock market is now, therefore, the first victim of this tendency towards financial panic. It is doubtless fairly alarming for investors to be faced with the entrenched, or even extreme, views of Donald Trump and Xi Jinping. However, the global economy continued to grow and the vast majority of companies, when publishing their annual results, are making no mention at all of any imminent recession.

The French, and more generally, the Europeans, with $3.1 billion dollars withdrawn this week from European equities, therefore have to kiss the stock markets goodbye for the moment. The historical irony is, as they may well remember, that it was on 5 March in 1886 that one of their compatriots, the anarchist Charles Gallo, tried to blow up the Palais Brongniart, home of the French stock exchange, this national temple to capitalism, with the help of a home-made bomb.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in March 8th, 2019.

DNCA Finance

DNCA Finance

DNCA Finance is an asset management company founded in 2000 by three wealth management specialists on behalf of private and institutional clients.

Over the years, founders have built a skilled and experienced management team to develop a range of simple, understandable and performing funds around 5 areas of expertise : European equities (“long only” and “absolute return”), Diversified management, Convertibles bonds, Eurozone bonds and ISR.

We offer a comprehensive range of products composed of 31 mutual funds French and Luxembourg domiciled (FCP and SICAV) organized in four areas of expertise: Fixed Income, Absolute Return, Diversified, Equities.

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