December 01, 2017

Stocks are uncertain despite a conductive economic framework.

Management comment

OPEC finally extended its output freeze until the end of 2018. Russia may nonetheless review the agreement during the course of the year as its production units require a longer start-up period following a lengthy closure after the winter. The oil price must not be allowed to rally too sharply however, as this would make US shale oil and gas competitive once again. Global demand is still expected to rise by around 1.5 million barrels per day. It should be noted that Venezuela’s exporting capacity has collapsed as the country attempts to restructure its debt. There are allegedly a dozen tankers waiting to load in the Jose and Puerto La Cruz shipping terminals.

Although eurozone inflation data provided no further clues regarding price indices over the next few months, the bond market nonetheless managed to react sharply during the week. While US equity markets hit further all-time highs, European markets gapped-down slightly amid profit-taking. There is much debate over upgrading macroeconomic growth outlook in the eurozone, as the current forecast of over 2% has not been reached for several years.

Strictly in terms of valuation, it is nevertheless true to say that European equities are the most reasonably-valued, or at least the least over-demandingly valued of all asset classes. Meanwhile, certain virtual assets, such as the bitcoin, have sky-rocketed recording a ten-fold year-to-date increase in value. The price has been multiplied by 30,000 since 2011 and daily variations are currently close to 20%. Certain observers including the Nobel economics prize-winner Jean Tirole see this surge as a modern-day echo of the 1637 tulip crisis in Amsterdam and Harlem.

As it is now time to plant tulip bulbs for flowering in the spring, let us wait and see what happens next to the bitcoin price before deciding whether it will be our digital tulip.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in December 1st, 2017.

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OPEC finally extended its output freeze until the end of 2018. Russia may nonetheless review the agreement during the course of the year as its production units require a longer start-up period following a lengthy closure after the winter. The oil price must not be allowed to rally too sharply however, as this would make US shale oil and gas...
2017-12-01