Stock markets

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…

US labour market: A solid overall performance in the first half of the year, but little wage pressure

The latest Labor Market Report shows that job creation has not come to a halt in the USA. A surprisingly weak previous month had stoked some very bearish speculation about the US economy. In fact, however, the number of registered employed increased in June by 224,000. In industry, too, 17,000 new jobs were created although in the meantime the smouldering trade dispute is visibly souring the business climate. The fact that average monthly job creation was “only” 172 k in the first half of the year and thus visibly below its level in the year-earlier period should not be taken as a warning signal because, on the one hand, population growth requires an increase of only 100 k employed persons and, on the other, in 2018 the reduction of corporate tax had created an additional thrust for job creation. A further explanation for the fact that the jobs motor is…

Why do company profits and share prices collapse so heavily in a recession?

A definition by the University of Oxford suggests that a cycle is “a series of events that are regularly repeated in the same order.” In the natural sciences, cycles follow certain patterns. The point in time, amplitude and degree of fluctuation repeat themselves. Economies, companies, markets and investor behaviour do not exhibit these fixed regularities. The movements are more complex and not predictable. They interlock, meaning that alongside the economic cycle there is the corporate profits cycle, the property market cycle, the general attitude toward risk amongst market players and other aspects, too. Together they provide the fundamental and the sentiment-driven framework data for investments in the capital market. During recessions falling corporate profits are considered to be the reason for the weakness of the economy and share prices. That said, why in a recession do the profits of publicly listed companies fall disproportionately sharply if macroeconomic growth only deviates…

The world after the G20

At the recent G20 summit, US President Trump and his colleagues once again spared us a catastrophe through their heroic conduct. Or such at least has been the press narrative built up very skilfully and effectively (particularly by the US) for the last few weeks. The problems that needed to be solved were actually created by the heads of government themselves beforehand – yet the G20 summit is viewed as a success. One undoubtedly positive aspect is that there was no major spat at the G20 meeting, while the countries involved also managed to come up with a final declaration – a little humility at least. The commitment to environmental targets is also a positive and necessary thing, but unfortunately the US was ultimately not willing to play ball here. The agreement between the US and China to resume negotiations on economic cooperation, and the announcements by President Trump that…

German top companies continue to slide

The German economy is known for the many medium-sized companies forming its backbone. Germany’s Mittelstand contains world market leaders, often in very specific market segments. On the other hand, in the case of large German companies, the competitive situation has obviously intensified. In our analysis of the world’s 500 largest companies by stock market value, turnover, net profit and number of employees, only a few German companies can be found. In the market value ranking at the end of the first half of the year, companies from the finance, technology, consumer goods and healthcare sectors dominated. In these areas, there are too few top companies in Germany able to play a significant international role. There’s also the fact that the cyclical sectors currently reveal very low value on the stock market. Accordingly, German automotive and chemical companies are lower in the ranking. At country level, the US accounts for 45%…

Demographic change: Sustainable solutions a matter of intergenerational fairness

The Federal Statistical Office has presented a new population forecast. While underlying conditions have improved somewhat in recent years as a result of the immigration of young people and rising birth rates, the basic problem of an ageing society remains. According to a middle variant of the 14th coordinated population projection, the population of Germany is expected to fall by around 5 million to 78.2 million people by 2060. Compared with today’s almost 34 of the retirement population for every 100 of the working age population, the ratio will have reached around 53 for every 100 by 2060. The age structure transformation will experience its greatest boost in around ten years’ time when the baby boom generation enters retirement. The ageing population poses enormous challenges for labour markets and social security systems. Examples are a shortage of skilled workers, a falling statutory pension level and an exacerbating nursing care crisis….

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