Stock markets

More savings in Germany

The environment for private household investment in Germany remains difficult. While the ECB’s announcement in September last year that it would phase out its net bond purchases in stages still raised hopes that the low-interest phase would subside, these hopes evaporated again at the turn of the year. With the slowdown in economic growth in Germany and Europe and the intensification of the trade conflict between the USA and China, monetary policy normalization receded into the distance. The average current yield on fixed-interest securities has been falling for months – with a negative sign since June. While expansive monetary policy and low interest rates are pushing up demand for equities as an investment alternative, trade disputes and a gloomy economic outlook are weighing on the sales and earnings prospects of listed companies. This limits price potential and increases volatility. In the first quarter of the current year, private households once…

ETFs and Co. – Curse or Blessing for Financial Market Stability?

Lower costs compared to actively managed funds, a price performance close to the index and diversification with low capital investment: it is not surprising that almost 5 trillion euros are invested worldwide. US dollars can be managed in passive funds (ETFs). The low cost, however, is only one side of the coin. The investment process in an ETF portfolio must also be defined and monitored. This includes aspects such as the definition of the benchmark, stock or index selection, reweighting of positions as well as the consideration of theme investments and other special features. Investors who cannot or do not want to determine and monitor the investment process themselves must ultimately continue to rely on external providers, which in turn leads to higher costs. However, the world’s two largest ETF providers together manage the equivalent of 15% of US GDP. The volume of managed funds is thus many times higher…

Interest rate fantasy on the stock market exaggerated

The hope of a key interest rate cut by the US Federal Reserve at the end of July drove the US stock markets to new highs. The S&P 500 recently broke through the 3,000 point barrier and the Dow Jones crossed the 27,000 point line for the first time. Basically, lower interest rates are good for the equity markets, as they both promote economic activity and increase the relative attractiveness of equities over bonds. Long-term historical data show that the US equity market recorded a positive average stock price performance and an increase in the valuation level in the months following the first rate cut. However, the last two turning points in 2000 and 2007 paint a different picture. These data suggest that if the peak in corporate earnings has already been reached in the economic cycle, lower interest rates will no longer drive the equity markets in the longer…

Pride comes before the bang – Is the summer rally coming to an end?

Fed Chairman Powell drove US equities to record levels this week. The first rate cuts by the US Federal Reserve since the financial crisis are imminent. These could actually become necessary, as the trade dispute between Washington and Beijing leaves its mark on the global economy. This can be seen worldwide in the early economic indicators and in Germany in the figures for listed companies. German companies publish profit warnings almost daily, especially companies from the cyclical sectors of semiconductors, mechanical engineering, chemicals and automobiles. The outlook for a continuation of the worldwide loose monetary policy should lead in the medium term to a revival of the so-called „Tina“ trade (there is no alternative) on the stock market. Investors will continue to try to escape the „underworld“ of negative interest rates in the bond market and generate income from real estate and equities. Dividend strategies should remain in high demand…

Interest – how low can you go?

A few days ago, the yield on 10-year German government bonds fell below the -0.4 percent mark. The European Central Bank has set the deposit rate at -0.4 per cent, i.e. the rate at which banks can park their excess liquidity at the ECB. According to this report, investors seemed at least temporarily more attractive to invest their money in long-dated German government bonds, even though they would have to pay an additional penalty interest rate for this, even compared to the safe, flexible and short-term investment at the ECB. Although the Bund yield has recovered somewhat in recent days, the question arises after this experience: How low can yields on safe government bonds still fall? We come to the conclusion that there is still a lot of „air down“ when it comes to returns. If the smouldering economic and political risks such as the „hard“ Brexit and a further…

Japanese equity market: low valuation, trade conflict an obstacle

Ever since 2013, Japan has been in the grip of “Abenomics”, a concerted effort to end the stagnation of the economy (which dates back decades) through a combination of reforms and fiscal and monetary stimuli. Six years on, a number of successes are apparent. Nominal gross domestic product (GDP) has risen, while the labour market currently has virtually no slack, with the unemployment rate standing at 2.5%. On the negative side, the government debt mountain has risen continuously and now amounts to almost 240% of annual economic output. In other words, Japan’s freedom of manoeuvre to deliver further fiscal policy stimuli is becoming increasingly limited. In the short term, Japanese inflation remains stubbornly low and the country’s economic growth remains dependent on the global environment. Against this challenging backdrop, real Japanese GDP actually declined in two of the four quarters of 2018. Although growth in the first quarter of 2019…

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