January 13, 2017

DNCA's weekly market outlook by Igor de Maack

Management comment

Promises compel only the listener. This observation accurately sums up the second week of January in the financial markets. The promises of tax and budgetary reflation, made by Donald Trump and his administration, were unflinchingly swallowed by investors throughout December. In the wake of healthy global economic indicators, investors are trying to second-guess the future profile of the economic cycle, in terms of its depth and its pace. In Tchaikovsky’s famous ballet Swan Lake, there are those who believe in white swans, i.e. faster global growth in a slightly more inflationary environment, which will be beneficial for companies and therefore for equity investments.

On the other hand, there are others who believe in black swans, which have been haunting spirits since 2008. Their scepticism has, for the time being, been wrong-footed by the relentlessly positive performances among US equity markets, with the European indices replicating the trend but still lagging far behind.
In China, although 2017 is not the year of the swan, it is symbolised by another bird, the cockerel. If we cast our minds back to the previous years under this same symbol in the Chinese zodiac, namely 2005 and 1993, both saw the CAC 40 index return performances in excess of 20%. However, 1933 was also the year of the cockerel, along with 1945. The signs to be read into this type of analogy with Chinese astrology are therefore not so easy to interpret, like opinion polls prior to elections.

Meanwhile, the Brazilian central bank cut its base rate (SELIC) by 75 bps in order to stimulate the domestic economy. The benchmark rate is now at its lowest level in two years, at 13%. The start to the year has also been symbolised by the departure of Barack Obama, the first black US president, who has been widely and incontestably appreciated and highly popular, particularly outside of the US.

He began his first tenure with the famous slogan YES WE CAN and ended the second on the concluding note of YES WE DID, both of which, after all, are claims that any fund manager would like to be able to make at the beginning and end of each investment year.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in January 13th, 2017.

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Promises compel only the listener. This observation accurately sums up the second week of January in the financial markets. The promises of tax and budgetary reflation, made by Donald Trump and his administration, were unflinchingly swallowed by investors throughout December. In the wake of healthy global economic indicators, investors are...
2017-01-13