September 29, 2017

Europe "En marche" ?

Management comment

As expected, the Alstom-Siemens Mobility deal has been announced. What struck us most during the press conference was the resolutely pro-European speech from the Siemens CEO Joe Kaeser. Although we are understandably cautious about the merger, given the numerous failed attempts to forge industrial alliances with incumbent French companies such as Alcatel-Lucent and Areva-Siemens, the creation of a European rail leader, in an attempt to replicate the Airbus model, would appear inevitable in view of the heightened competition from China.
Meanwhile, the French President was busy rekindling the European project with his partners at the Tallinn summit. Here again, this would appear to be an imperative if the leaders wish to reaffirm the growth potential and competitiveness of the eurozone. During September, long-term rates steepened marginally, with 10-year Bund yields rising 10bps to 0.48%, while the euro weakened by a couple of cents to 1.17, inversing the trends observed over the summer. Although the gradual increase in the interest-rate cycle has not yet effectively been triggered, the next ECB meeting could (finally) serve as a catalyst. Banks, which represent a divisive and polarising sector within the financial community, could be the main gainers from this trend in the short term. Over the medium term however, although their business model will remain under pressure from digitalisation, exacerbated by the arrival of new players in the industry and regulatory constraints, certain banks have already undertaken a number of precautionary measure, such as the closure of 20% of Société Générale’s agencies.

The steep surge in on-line banking in France, which is generally far behind other countries in terms of using internet banking services, demonstrates that this segment delivers productivity gains and provides a source for enhancing customer satisfaction and also opens up further opportunities for cross-selling products on-line, including insurance and consumer credit. The banking sector is therefore not completely dead yet. The demise of accommodating monetary policies will level the playing field in terms of allocation between asset classes and between different regions and also between the different segments of the equity market. Patient advanced preparation is therefore required.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in September 29th 2017.

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As expected, the Alstom-Siemens Mobility deal has been announced. What struck us most during the press conference was the resolutely pro-European speech from the Siemens CEO Joe Kaeser. Although we are understandably cautious about the merger, given the numerous failed attempts to forge industrial alliances with incumbent French companies such...
2017-09-29