December 29, 2016

DNCA's weekly market outlook by Igor de Maack

Management comment

REFORM, this is the word that political leaders, election candidates, citizens and investors in the Western world have been demanding, clamouring and bellowing all year long. Throughout global developed markets, hundreds or even millions of voices have been calling out for change without always exactly knowing why. The British voters expressed their wish to leave Europe, but nonetheless want to benefit from a trading agreement with the continent. Donald Trump aims to challenge the liberal principles on which the US is founded by rescinding existing trade agreements. Although the Europeans, starting with the French, also wish to “upset the applecart”, as soon as future efforts are required, voters disavow the idea and dig their heels in, like in Italy where Matteo Renzi’s ambitions and dreams were dashed against the futility of a fragmented, rationalized and obsolete political system.

Why change? Make progress towards what end? Renewal as a rejection of what? These are the main questions which will directly impact our way of saving, investing, spending and educating future generations, who not only require inventiveness with the advent of the digital age, but also exemplarity among the elite. As a result of believing more firmly in the idea of change for its own sake, rather than its repercussions, whether positive or negative, the Western world, which is usually so prompt to impose its own rationale, has collided head on with the Syrian tragedy which appears increasingly complex and lethal with every day that goes by. What if however, in 2016, the way forward was ultimately shown by the emerging economies (the so-called BRIC countries) so readily pilloried by the media? Let us reflect on their track record over the past year. China took its anti-corruption combat to new spectacular heights, while the Brazilian parliament impeached its head of state and launched bribery proceedings against Petrobras. India took a particularly hard line, with the government implementing the largest demonetisation procedure ever seen, by withdrawing high-denomination banknotes in order to reintegrate the shadow economy into the mainstream system. Meanwhile, Russia succeeded in imposing its geostrategic view in the Middle East and also participated in the OPEC agreement in an effort to boost the oil price.

In terms of investment strategy, managers who based their market timing on elections during 2016 could be wrong-footed once again in 2017. Citizens and investors of course can all say with sincerity, that although we do not live in the best of all possible worlds, this is the only one we know exists. If the theme had not become such a heavily distorted simple marketing slogan, we would all be keen to constantly call for change, and not just during election campaigns, and implement it in order to truly improve the world. Let us nonetheless remain realistic, without becoming too ideological, which would help avoid errors across all domains.

These considerations may prove to be over-philosophical, although in these past fifty-two weekly letters, much had already been written on the topic of interest rates, equities, valuations, growth, currencies, the oil price, volatility and...pending further ongoing discussions on the same topics in 2017, the DNCA investment management team wishes you every happiness and prosperity for the New Year. 

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in December 29th, 2016.

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REFORM, this is the word that political leaders, election candidates, citizens and investors in the Western world have been demanding, clamouring and bellowing all year long. Throughout global developed markets, hundreds or even millions of voices have been calling out for change without always exactly knowing why. The British voters expressed...
2016-12-29