Within a year today, the global economy has grown by 3.6% in real terms. Corporate profits have risen worldwide by between 13 (MSCI World) and 18 percent (DJ Global Titans), with the DAX reflecting part of these profit increases at a level of 14,200 points. Key interest rates are heading upwards on the other side of the Atlantic while capital market yields on our side remain low – for ten-year German government bonds we currently see little prospect of more than 80 basis points. We confirm these forecasts but already expect that the path followed by stock markets will not be linear in relation to our forecasts but somewhat more erratic. This can be attributed to the following factors (leaving aside those we are still unaware of today):
- The “Trump Era” continues to pose a threat to stock markets, not least because of the danger of a trade war between the USA and China. The global growth model of a world based on a division of labour is increasingly at risk and Germany, as an economy closely integrated into world trade, would be jeopardised to an above-average degree. The first escalation level will begin on 6 July 2018 when both the Americans and the Chinese set up tariffs on goods worth up to USD 50 billion. Nothing precise has been given on the second escalation level (further taxation of USD 200 billion worth of goods), with the US President having only “tweeted” on the issue until now.
- The Italian government is to negotiate financial benefits with the EU. Furthermore, in Germany developments within the government could escalate at any time or just as likely recede. These issues will become acute in the coming weeks (Germany) and after the summer break (Italy/EU).
The prospects for stock markets are not particularly good, with market sentiment possibly turning sour between July and late autumn. The decisive factor, however, is whether there will be real economic consequences for companies and, if so, to what extent. Until now there have only been signs of sentiment clouding over in Germany but no real economic deceleration effects, leaving aside the new tariffs between the USA and China (see Daimler’s profit warning). The global upsurge in profits recently accelerated again in response to the rise in the price of crude oil and the US tax reform on the back of a boom in technology stocks.
For this reason, our assessment of stock market developments remains upbeat even if steady nerves will be needed in the months ahead.
To temper the price fluctuations within the DZ BANK model portfolio and at the same time profit from the top-performing US and Asian markets, we have lowered the DAX’s exposure in the portfolio from 18% to 10%. In return we have raised our exposure to the DJ Global Titans by eight percentage points. By making this move we have lowered the cyclical risk and are able to invest in US stocks again, especially in the highly-profitable technology and financial stocks. At the same time, our “participation” in allocation issues such as high dividend payments and share buybacks increases. The DJ Global Titan’s current PER lies at 15.8 points, and earnings growth is expected to amount to 18 (%) percent next year.