December 15, 2017

Eurozone accelerate while more volatility is expected in 2018...

Management comment

For the past ten years, the whole world and particularly English-speaking commentators have been predicting the collapse of the eurozone. After two macroeconomic crises, followed by an institutional crisis and also after teetering on the verge of a monetary with Greece, growth in the eurozone is now picking up its pace towards 2.3-2.4%. Inequality in the eurozone has also increased less than across all other regions. Although it may be said that the growth rate is lagging in the eurozone, if economic expansion benefits only a small minority, it will necessarily increase imbalances within democracies which will then be at the mercy of populist political pressures, as expressed by the Brexit and the election of Donald Trump. Galbraith wrote that economic abuse is like alcohol abuse and leads to a headache the morning after. The increasing level of debt around the globe will therefore have to be closely scrutinised.

France and Italy probably represent the two positive surprises in 2017. Without undertaking any major reforms, Italy has preserved its bicameral legislature which works to the exclusion of extremists. Amid a series of ambitious reforms and free of any credible opposition, France under Emmanuel Macron has the opportunity to resume a leading economic and political role. Europe is nonetheless still facing further elections in Catalonia and Italy, along with the attempts to form a coalition in Germany, which will undoubtedly prove to be events which generate stress among the markets.

A wave of mergers and acquisitions including Disney/Fox, Unibail/Westfield and Atos/Gemalto, illustrate optimistic corporate outlook. The US decision to raise its base rates therefore met with general indifference. The prospect of 2 or 3 further rate hikes in 2018 is yet not fully priced-into the markets. All of the global central banks are beginning to express concerns regarding the harmful effects of an over-accommodating monetary policy over a long period. This factor may be a source of temporary corrections and volatility during 2018. We shall have to wait another eight days to see the photo finish delivered by equities in 2017.

To ensure that this year’s snapshot is a success, investors will have to hold still, smile and look at the camera hoping to achieve a seventh positive year in the European equity markets.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in December 15th, 2017.

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For the past ten years, the whole world and particularly English-speaking commentators have been predicting the collapse of the eurozone. After two macroeconomic crises, followed by an institutional crisis and also after teetering on the verge of a monetary with Greece, growth in the eurozone is now picking up its pace towards 2.3-2.4%....
2017-12-15