January 06, 2017

DNCA's weekly market outlook by Igor de Maack

Management comment

Following the resurgence of the cold war during 2016 between the US and Russia, 2017 could prove to be a year which mobilises the CIA. However, this acronym, which normally stands for Central Intelligence Agency, has another meaning for us, involving Constant growth, Inflation and Aggressive equity investment. These three themes are the key to a successful performance for investors willing to take risk, particularly in Europe, and more specifically in the eurozone. Our recent meetings with European companies have all concluded with the same edifying set of observations. Well-managed and restructured, while borrowing at the cheapest rates ever, companies have significantly improved their financial and operational leverage. They are all expecting the same result, i.e. an uptick in sales driven either by higher volumes or by price increases.

The latest confidence indicators in France and the US are extremely bullish. Inflation indices are creeping towards the 2% ECB target, particularly in Germany. Risks regarding the economic cycle clearly still exist however, as doubts linger over the efficiency of measures proposed by the Trump administration and the dollar exchange rate, as well as the flight of capital from China and the need for structural reforms in Europe.

Certain sectors, such as the oil services industry, remain under pressure. However, there are few alternatives to European equities as the upswing in the cycle is confirmed. France harbours strong potential if well thought-out reforms are implemented. The country boasts a broad network of global innovative companies, illustrated by the high number of French tech companies at the Las Vegas CES tradeshow. The quality of the private sector reflects a stark contrast with the prevailing doomsday attitude and the suffocating weight of the public sector.

The Germans, our most ardent admirers despite sometimes misleading appearances, use the delightful expression “leben wie Gott in Frankreich” meaning “as happy as God in France”. Let us all hope that the French market proves to be the paradise vaunted by the Germans in 2017.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in January 6th, 2017.

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Following the resurgence of the cold war during 2016 between the US and Russia, 2017 could prove to be a year which mobilises the CIA. However, this acronym, which normally stands for Central Intelligence Agency, has another meaning for us, involving Constant growth, Inflation and Aggressive equity investment. These three themes are the key to a...
2017-01-06