November 18, 2016

DNCA's weekly market outlook by Igor de Maack

Management comment

Most investors are now asking whether the latest market trend, triggered by the US election, is sustainable. A few days after the event, we can draw some initial conclusions. Firstly, the current market phase resembles an adjustment characterised by a knee-jerk reaction among the various asset classes, which had seen significant investor rotation over recent years. Investors sold sovereign bonds, gold, emerging markets and overvalued growth equities and rolled their investments into discounted value equities and sector plays such as banks, insurance and pharmaceuticals. Position rotation occurred in heavy volumes as i/ certain investment themes were far too consensual, even naively so, and ii/ Trump’s election was unexpected, as was the impact on fixed-income markets. The election has served as a trigger for bond investors who have been in an (un)comfortable situation for too long now.

The result of the ballot and its consequences will make the forthcoming interest rate hike by the Fed in December all the more justifiable. The fixed-income markets, which often play the role of precursors, are thus tracing a new trend by provisionally eclipsing the inflationary scenario.

Although the US reflation strategy will boost equities, it will also have to feed through to Europe, which is facing problems beyond monetary and economic issues. Furthermore, let us not forget that without real GDP growth, inflation is not a panacea for consumers and companies. In the US, it is still too early to draw conclusions or bet on the efficiency of the policies to be implemented by Trump’s team. Europe, where rekindling economic growth remains the top priority, is under a double-edged sword, facing a busy electoral period.

Patience, which often has a bitter taste, is therefore still required, but it can yield delicious fruit.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in November 18th, 2016.

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Most investors are now asking whether the latest market trend, triggered by the US election, is sustainable. A few days after the event, we can draw some initial conclusions. Firstly, the current market phase resembles an adjustment characterised by a knee-jerk reaction among the various asset classes, which had seen significant investor...
2016-11-18