8th April 2019

Financial markets dialogue for the second quarter

Marc Fohr, Head of Investments at BCEE Asset Management (now Spuerkeess Asset Management), discusses current financial market news.

Time is passing and the first quarter of the year is almost behind us: what is new in 2019?

Worldwide economic growth forecasts are gloomy. In January, the International Monetary Fund revised 2019 growth forecasts down to 3.5%.

The slowdown is happening at two different speeds: Europe and China are suffering while the United States remains the driver of global growth.

In Europe, Germany’s automotive industry and exports are affected but the country remains very well placed to withstand the headwinds. Its employment market is in good health and its public finances are sound. In Italy, political uncertainty has led to a lack of visibility, resulting in a fall in consumption and private investment.

The European Commission is also anticipating very weak growth of 0.2% for 2019.

In China, the economy is slowing down, but this must be viewed in relative terms: the government is forecasting growth of 6 to 6.5% for 2019, at a time when the Chinese authorities are transitioning towards a service economy, and is doing whatever it can to stimulate demand in areas where it is weak

In the United States, the economy is proving to be exceptionally resilient. While the government shutdown and the trade tensions have clearly had an adverse effect on economic data, the country nevertheless has significant strengths which allow it to remain resolutely optimistic.

What are your views on fixed income investments?

In terms of fixed income investments, the economic slowdown, the fall in inflationary pressures in Europe and the uncertain outcome of Brexit would seem to be the principal sources of concern for investors. Our positioning is neutral both on European sovereign securities and those of peripheral countries.

European credit has been in demand but we think that demand will dry up and have reaffirmed our negative stance towards that market. In the United States, the yield curve has led us to adopt a neutral stance: 2019 is a new start, with the Fed changing its tone by showing itself to be less restrictive than in previous publications, and with no inflationary pressure. As for the US credit market, we are favouring a prudent approach and increasing the quality of the securities we select.

The equity markets began the year in a truly explosive fashion. What approach are you favouring in terms of equity investments?

In the area of equity investments, the markets in developed and emerging countries recovered spectacularly after the holiday season. The conciliatory language used by the Fed, progress in the trade negotiations between the United States and China, the end of the government shutdown and the publication of good results reassured investors.

As such, we have opted for a more defensive positioning by reducing our exposure to equities, since the current environment is less favourable than in 2018. There were some exceptional performances that led to us taking profits at a time when we expected increased volatility, which reached a very low level despite the tensions in the political world.

And how have the central banks reacted?

Against this backdrop, the central banks have followed different paths, representative of their post-crisis performances: in the United States, after the recovery, the Fed has normalised its monetary policy by gradually increasing its key interest rates and reducing the assets on its balance sheet.

In Europe, the ECB has been slower to take action, as the recovery has not been as sustained as in the United States. What, therefore, will be the new norm for monetary policies? The coming months will provide some answers to this question that we will set about analysing.   


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