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.

Staying on course in turbulent stock market times: our equity allocation under the microscope

Companies are still enjoying high profit margins, a result of their pricing power. But fears of a mild recession lurk around the corner. Despite a strong first quarter, the economic outlook looks dimmer. Are we bracing for harsher weather? A more defensive interpretation of the equity portfolio is emerging. Mark Van Assche, Account Manager, Private Banking & Wealth Office, discusses this topic with Antoine Ruotte, Fund Manager at KBC Asset Management.

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

08-06-2023

Economy & Policy

  • Lower energy prices provide continued tailwinds in Europe, nevertheless Germany dives into a technical recession. In China, economic indicators are rather weak, expectations of stimulus are rising. In the U.S., core inflation remains high, the labor market strong, but purchasing managers turn gloomy.
  • Recent figures clearly show that inflation has peaked and is now falling in both the US en Europe. Energy prices are low, which is positive for inflation in Europe and in the US. The US labor market appears to be normalizing. However, core inflation is falling slowly in both the US and Europe.
  • The extraordinary stimulus programs fade away gradually. But no austerity signs. Investment programs such as EU Next Generation and the Biden government package remain substantial and very supportive. China may also join the ranks of governments looking to stimulate the economy.
  • Fighting inflation remains the main objective of central bankers. Interest rate hikes have a strong impact on households and the economy. Further tightening remains in the pipeline both in the US and the eurozone, mainly because of the persistent core inflation. The end of tightening cycles is near, however. 

Financial markets

  • Central banks expect rates to peak by mid-2023. Investors are looking forward to a pause and some are even hopeful to a first cut. On the other hand, economic signals have been less negative since early 2023, meaning that riskier bond themes merit a place in the portfolio.
  • First quarter results were better than expected, but the bar was set quite low. Earnings growth in the US was higher than expected and Europe is also doing better. 

What risks do we see?

  • Inflation is top of our list. Core inflation remains at a high level in both and the US. That persistence is affecting the policies of central banks and, consequently, economic growth. Sentiment may turn as a result. The debt ceiling is no longer a concern, therefore the focus is now back on economic data and corporate results.
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First-quarter results were better than expected. Earnings growth was higher than expected both in the U.S. and Europe. However, economic data continue to show a mixed picture. Core inflation remains too high, leaving the possibility of further interest rate hikes. The labor market in the US remains strong, but purchasing managers are becoming more gloomy.

Siegfried top, Senior Investment Strategist KBC Asset Management

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