October 21, 2016

Find weekly market outlook by Igor de Maack

Management comment

As expected, nothing of interest came out this week’s ECB meeting. The situation does not justify either stepping-up or tapering current accommodating monetary policy. It would also have been too risky to announce a surprise decision ahead of the likely interest rate move by the Fed in December and the forthcoming elections. Meanwhile, China released steady GDP growth figures. Q3 came in at +6.7% annualised, which was in-line with the two previous quarters. One interesting point to highlight within this latest indicator was the strong contribution from the property sector and also from public investment, underpinned by political resolve. Although the official statistics always meet with scepticism, the economy nonetheless remains on a dynamic trend. Earnings publications from luxury goods groups have even implied an uptick.

An old far-eastern adage attributed to Confucius may guide disoriented investors caught in the grip of zero rates and constant fiscal pressure. The grand Chinese sage gave the following advice: “If your plan is for one year plant rice. If your plan is for ten years plant trees. If your plan is for one hundred years educate children”. We could therefore transpose these principles to the modern world of investments. In the short term, i.e. less than one year, invest in short-dated bonds and receive the annual or half-yearly coupon like the peasant farmer in his paddy field harvesting rice. Certain strains of rice plant can produce several crops per year. Each year however, reinvestment (replanting) is required to receive further remuneration. In the case of a ten-year investment horizon, invest in equities, like the fruit-farmer planting his trees in order to pick the first fruit three or four years later.

Finally, the investor planning for more than a lifespan (100 years) should certainly finance his children’s education, so that they can fund his hard-earned retirement, but he should also invest in a long-term indexed annuity. Other than property, which is always regarded as a very long term investment (particularly by the French), he may also chose equities, especially stocks distributing generous dividends, as dividend payout frequently constitutes the solid base of a sustainable performance.

Although European investors are unlikely to convert to Confucian philosophies by the end of this year, it is nonetheless worth bearing in mind that each investment corresponds primarily to a specific investment horizon. 

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in October 21st, 2016.

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As expected, nothing of interest came out this week’s ECB meeting. The situation does not justify either stepping-up or tapering current accommodating monetary policy. It would also have been too risky to announce a surprise decision ahead of the likely interest rate move by the Fed in December and the forthcoming...
2016-10-21