August 19, 2016

DNCA's weekly market outlook by Igor de Maack

Management comment

Summer 2016 continues with no drama or volatility. The British tried their best at disruption with Brexit at the end of June, but the markets decided that the referendum vote was an event whose consequences would remain in the UK (which is what we thought as well). This is due to the fact that the risk for investors is not a country leaving the European Union, but rather leaving the Eurozone. Furthermore, it is now rather amusing to hear the new British government say they will push the Brexit date back to 2019, under the pretence of more or less fallacious arguments (unprepared teams, elections in France, etc.) Incidentally, the beginnings of the economic downturn may already be felt locally: price inflation on imported products (vehicles and petrol), the first decline in rents since 2010 and the pound slumping 10%-15% against a basket of currencies. For the time being, UK citizens remain confident, possibly due to the slew of Olympic medals brought home by British athletes. Apparently, tourists have also supported consumption, thanks to the weak pound against other currencies. In France, despite sluggish performance in Q2, GDP growth is still expected to be around 1.3% to 1.6% this year. Unemployment continued to fall, dropping below 10%, thus bringing the employment rate to a level last seen in Q3 2012. This employment uptick is surely due to the growth of European partners, notably Germany, who recorded a solid level of activity in Q3. Despite the attacks, strikes and slow and incomplete structural reforms, France can count on its robust consumption and dynamic companies. Ever-increasing lending also contributes to France’s growth.

At summer’s end, markets will soon return to performances that have practically balanced out all volatility spikes, except in Italy and southern Europe in general. The economic and monetary policy landscape is quite similar to pre-summer conditions. Those who would have favoured sovereign bonds from the heart of the Eurozone in their allocation will claim that they predicted the political maelstrom in Europe (Brexit, Italian referendum) as well as a slump in economic growth… which hasn’t yet occurred. Those who chose to invest in risky assets will have a more volatile and hazardous path, despite the undeniable relative intrinsic qualities of this asset class. Finally, in 2016, investors’ quest for performance is proving to be just as difficult, uncertain and breathless as the Olympic Games.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in August 19th, 2016.

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Summer 2016 continues with no drama or volatility. The British tried their best at disruption with Brexit at the end of June, but the markets decided that the referendum vote was an event whose consequences would remain in the UK (which is what we thought as well). This is due to the fact that the risk for investors is not a country leaving the...
2016-08-19