December 16, 2016

DNCA's weekly market outlook by Igor de Maack

Management comment

The week got off to a euphoric start, as the recapitalisation of the Italian banks Monte Paschi and Unicredito was lunched. Confidence has been restored among the markets, which were also buoyed by a fresh wave of mergers & acquisitions. Deals announced included Imerys/Kerneos, Gemalto/Biométrie 3M and the acquisition of RTL radios by M6, while Vivendi is taking a stake in Mediaset. As expected, the Fed raised base rates for the second time in a year, surprising the markets by announcing three future hikes in 2017. Janet Yellen has therefore fallen into step with the proposals made by Donald Trump, who has adopted a “monetary cowboy” stance since his election.  Although the monetary and financial scenario is slowly taking shape, political leaders now have to accelerate the economic locomotive. Annual European growth has persistently risen above its long-term potential (1%) since 2014. Election results, the migratory crisis and terrorist attacks have had only a limited impact for the time being. Meanwhile, analysts are starting to upgrade earnings forecasts.

In contrast, the US economy is expanding at a rate which is below its long-term potential of 2.5%. The dollar is appreciating in the wake of tighter monetary policy and is now heading towards parity. At these levels, it would be wise to refrain from playing the dollar rally vs the euro. French equity indices have been trending higher for several months now, despite heavy criticism. The run-up to the 2017 presidential election may also provide some further clarity regarding France’s potential, if a new government undertakes reforms.

Learning from the events of 2016, investors should avoid the same mistake of overestimating election results. However, the eurozone and Europe require a fresh transformation process drawing on stronger and more coherent Franco-German unity to convince international investors to pile back into European equities.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in December 16th, 2016.

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The week got off to a euphoric start, as the recapitalisation of the Italian banks Monte Paschi and Unicredito was lunched. Confidence has been restored among the markets, which were also buoyed by a fresh wave of mergers & acquisitions. Deals announced included Imerys/Kerneos, Gemalto/Biométrie 3M and the acquisition of RTL radios by...
2016-12-16