A good investment strategy goes a long way

See how our investment strategy responds to economic and financial events.

A good investment strategy goes a long way

See how our investment strategy responds to economic and financial events.

Can European stocks continue their strong start?

What are the structural differences between U.S. and European equities, both in the short and somewhat longer term? And how does the strategic and tactical choice between the two affect your returns? Mark Van Assche, Private Banking and Wealth Office account manager, talks about it with Baptiste Mesot, Portfolio Manager at KBC Asset Management.

02-05-2024

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What’s happening in the world? And what are the implications for the financial markets? 

Update May 23th, 2024

Economy

  • Economic data points in manufacturing and services seem to be slowly stabilizing, even in Europe. 
  • The US economy is quite strong on account of continuing low unemployment and a strong consumer. 
  • The economic growth in the US keeps surprising on the upside.

Comodity prices - inflation

 

  • Inflation is still on a downward trend in both the US and Europe.
  • Persistant underlying inflation (especially in the services sector) and recently rising oil prices mean that the disinflation process is proceeding somewhat more slowly than previously thought. 
  • Espacially in the US, we are still seeing inflation rates surprise in the interim.

 

Fiscal and monetary policy

  • The exceptional stimulus programmes are being scaled back, but there is no sign of savings drift. 
  • Programmes such as EU Next Generation and the Inflation Reduction Act in the US are still substantial and continue to offer considerable support. 
  • China is also stimulating its flagging economy. 
  • Central banks in the US and Europe raised key rates at an unprecedented pace in an effort to slow growth and cool inflation. 
  • In their recent communications, the banks confirm that the disinflation process is still on track but that confirmation is needed before cutting the policy rate. 
  • The market is counting on an initial policy rate cut in June for the ECB, but is questioning the pace in the US.

Bond markets

  • Interest rates appear to have peaked. 
  • However, a range of inflation data (especially in the US) and higher oil prices cast doubt on the timing and magnitude of the expected cut in policy rates. 
  • As a result, we still see interest rates making occasional bucks.

Equity markets

  • Equity markets recover from their April dip.
  • Profit expectations for the second half of the year may be a bit on the high side, but the bar is not too high for the current reporting season (Q1). In the US, earnings growth of around 4% is expected, while for Europe, earnings contraction of just under 15% is expected.
  •  The figures that have already been published seem to exceed expectations.

Risks

  • Oil prices have risen solidly since the beginning of the year. 
  • However, the conflict in the Middle East and Ukraine could continue to cause nervousness. 
  • Not an easy environment, therefore, for policymakers to take decisions on interest rates. 
  • The US elections may also cause volatility later this year.

Rising bond yields, uncertainty about inflation and central bank interest rate policy, together with geopolitical tension, are causing nervousness on the stock markets. In the meantime, however, the global economy remains strong and the first indications of the earnings season are positive. We remain neutrally positioned.

Siegfried top, Senior Investment Strategist KBC Asset Management

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