January 20, 2017

DNCA's weekly market outlook by Igor de Maack

Management comment

On 20 January, Donald Trump will be sworn in as the 45th President of the United States and it may be tempting to deploy the time-honoured phrase “for better or for worst”, usually used in wedding vows. The “better” can probably be seen in the new president’s ability to coerce national companies, such as Ford and Lockheed Martin, through a simple tweet, to reinvest in the US and participate in extending the economic cycle. The “worst” resides in his impulsive outbursts, which are sometimes inappropriate and often scathing with regard to any form of resistance against the new brand of protectionist capitalism being adopted throughout the English-speaking world.

However, so far his character has positively surprised observers and, despite an over-hyped denial, effectively embodies one facet of the American dream and represents a much deeper analysis of the harmful effects of rampant globalisation. For the time being, financial markets have noted only the healthy aspects of macroeconomic indicators and have also been buoyed by the announcement of megamergers in the Eurozone, namely Essilor/Luxottica and Safran/Zodiac. Other European deals could follow, potentially involving Telecom Italia, Bouygues and Orange among telecoms, or Vivendi, Havas and Mediaset in the media sector, or Prysmian, Nexans and General Cable in the industrial cables industry.

US investors on the other hand will undoubtedly await the outcome of the presidential election in France before piling back into European equities. Meanwhile, eurozone investors will be tempted to progressively reallocate out of fixed-income markets and into equities. Already, the French investment scheme providing tax incentives for holding small & midcaps equities (PEA PME) generated inflow of around €500m in 2016. In Italy, the government has set up a similar tax incentive for domestic small & midcaps called the Piani Individuali di Risparmio (PIR), which is comparable to the ISA investment scheme in the UK. With real interest rates remaining negative, as inflation edges higher, banking on eurozone bonds with long-dated maturities is a risky bet.

As long as the economic cycle stays on track, while corporate balance-sheets have been streamlined and dividend payout remain generous, it appears inconceivable to miss out on investing a proportion of savings in European equities.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in January 20th, 2017.

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On 20 January, Donald Trump will be sworn in as the 45th President of the United States and it may be tempting to deploy the time-honoured phrase “for better or for worst”, usually used in wedding vows. The “better” can probably be seen in the new president’s ability to coerce national companies, such as Ford and...
2017-01-20