Half-yearly earnings have so far not shed any further light on macroeconomic trends. Although there has been no indication of faster growth or a sharp downturn, earnings data concerns the period before the Brexit vote and the recent series of terrorist attacks since the tragedy in Nice. Many companies published reassuring figures or beat consensus forecasts, particularly in the luxury goods sector (LVMH) and among IT services (SAP and Capgemini) and consumer goods groups (Adidas and Diageo). On the other hand, telecoms continued to underperform (KPN and Orange) while investor fears focussed on banks (Deutsche Bank and BNP Paribas) ahead of the stress test results due on 29 July.
In short, the current reporting season is unlikely to provide any of the much-awaited answers that investors are anticipating regarding broader issues. Will macroeconomic growth slow down in 2017? Will forecasts be revised downwards? Will the UK drag the eurozone into recession? Will Donald Trump be elected? Will the Fed finally hike its rates?
Since the beginning of the year, European equity markets have at times wandered into the valley of death, or soared to new all-time highs, then ridden among turbulent rapids through deep ravines. At other times, the markets have borne too close a resemblance to the most flamboyant casinos in Las Vegas. The equity market certainly appears to be one of the most challenging investments, as it is one of the most volatile asset classes, but it nonetheless still harbours potential positive returns this year, despite some negative year-to-date performances among European equity indices. 2016 will perhaps therefore be a good year for stock-pickers.
At the other end of the risk-scale, delivering performance in the bond market remains highly complicated, other than by investing in French and German sovereign debt, which is overpriced as valuations are artificially inflated by the ECB.
Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in July 29th, 2016.
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