Stock markets

Equities: danger of the „dividend strategy“ myth

Nothing seems to attract investors so much as high dividend yields and their reinvestment. For some years now dividends have become the „new interest income“ among institutional investors. Individual investors have also discovered dividends and have been blogging about everything to do with „dividends as a second source of income“. There has been an explosion in the number of dividend blogs. Moreover, on websites, investors often only buy those stocks which pay the highest dividends. Many investors hardly bother with a fundamental analysis of the companies in question. A broad spread across 50 stocks or more aims to protect from risk. Special stocks (e.g. American master limited partnerships) or stocks which pay a tax-free dividend are often added to portfolios without any previous checks. Much as we welcome the fact that German investors are now also investing more in equities as part of building up a pension pot, shareholders should…

Despite the G20 Summit, equities are now facing stronger headwinds

Despite the results of the recent G20 Summit, the pace of macroeconomic growth is definitely slowing. For some time, the problems were limited to emerging markets, but it is now becoming apparent that economic growth has also peaked in a number of developed countries. The trade dispute between the USA and China, patches of weakness in Brazil, Argentina and Turkey, to say nothing of the uncertainty surrounding Brexit and the budget standoff between Italy and the EU: these factors have led to numerous profit warnings at cyclical Dax companies over the course of the second half of the year. This burdensome situation has been compounded by the structural challenges facing the German automobile industry as well as by the problems afflicting individual corporations, for example Deutsche Bank or Thyssen Krupp. It is true that domestic business in Germany is ticking over nicely on account of the high propensity to consume…

Equity markets – pessimism overstated

In the USA, interest rates have been rising since 2015. We are in the flattest cycle of key interest rate hikes in 50 years, but interest rates are rising. This naturally also has repercussions for medium and long-term yields which have also risen. At the same time, the US Federal Reserve is also winding back the supply of liquidity and slowly reducing its balance sheet. Financial markets and especially equity markets have long ignored this development. This phase now seems to be over. The current correction is being compounded as a result of a reassessment of business models in the technology sector. The previously anticipated profit increases are now being increasingly called into question. In addition, there are growing concerns that earnings prospects will be further reduced in response to regulation in the data area and possible restrictions on the technological oligopolies. However, I believe that too much pessimism is…

Stock markets in a defensive frenzy: artificial intelligence with the same P/Es as canned soup manufacturers

Equity market players are banking on strong defensive action and are buying supposedly boring companies instead of fast-growing stocks. This could be seen in October when the until-then popular technology stocks chalked up heavy share price losses while the previously-shunned defensive stocks caught up. Prices of shares from the pharmaceuticals and food sectors are currently charting highs for the year while the prices of cyclical stocks are far lower. In theory, the well-being of cyclical stocks depends on an environment of economic growth. In an economic recession their share prices accordingly fall more than the average. By contrast, defensive stocks also prosper when the economy weakens. In practice, however, for several years now companies such as Nestlé, AB Inbev, Coca Cola and Co. have been growing far more slowly (if at all) than global inflation. These defensive companies have increasingly sought salvation in financial engineering measures. These have included share…

Equity markets – Correction: Yes, Turnaround: Not yet

With the recent correction in the USA, US share indices have started to copy the weak share price performance in the other markets. Before this, the boom enjoyed by the tech stocks (known under the acronym FAANG stocks) as well as the positive effect of the tax cuts had lent the American equity markets a degree of buoyancy that was lacking in this form in the other markets. On the contrary, many European companies have suffered from mounting uncertainty about investment as a result of the USA’s “America First” policy. So far the correction has not been unusually pronounced. On average, since 1975 the DAX has corrected intra-year by 18% from the local high to the next low. So the decline in DAX share prices from this year’s high (18 per cent) is precisely in line with the average. Only a DAX level below 11,000 points would be unusual. The…

World Savings Day 2018: difficult environment for private investment

The annual World Savings Day was founded more than 90 years ago to promote the idea of saving. Not only adults are addressed but children and adolescents in particular. In fact, according to our estimates the savings rate of private households in Germany should increase further this year – to a good ten percent of the disposable income. That would be the fifth consecutive increase. However, the framework conditions for investing are anything but good: 2018 threatens to be the most difficult investment year in a long time. This is not only due to interest rates that can barely be measured and which many private investors have had to accept with gritted teeth for several years now and which are no longer sufficient to compensate for the loss in value due to inflation. This year the situation is aggravated by the performance of equities and equity funds, which have often…

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