Gerhard Winzer am 25th August 2015 © iStock
Equities, bonds affected by default risk, commodities, and emerging markets currencies are currently subject to corrections, which, noticeably, have now gone beyond the purview of emerging markets: while the emerging markets equity index declined by almost 6% (Performance-Data Source: Bloomberg, MSCI) last week, the index for developed markets lost 5.3% (Performance-Data Source: Bloomberg, MSCI). The fear that the economic weakening in the emerging markets might come with significant spill-over effects for the industrialised countries has increased. This prompts the question whether a phase of profound corrections is upon us in the risky asset classes. The question alone has caused the risk aversion of investors to rise. The liquidity is temporarily parked in safe havens such as US Treasury bonds, the euro, and the Japanese yen.
Gerhard Winzer am 17th August 2015 © iStock.com
On 11 August China devalued its currency by 1.9% relative to the US Dollar and announced that in the future it would expose the exchange rate of the Renminbi to the forces of supply and demand on the foreign exchange market. In a press conference the Central Bank did say, however, that it would continue to intervene if the development of the Chinese currency were “volatile”, “irrational”, or “distorted”.
Peter Szopo am 13th August 2015 © iStock.com
If you thought “quarterly” was a simple adverb characterizing a regularly recurring activity, you may need to reconsider. A new term is making the rounds: “quarterly capitalism” – and in this context, “quarterly” stands for “short-term, myopic, greedy and dysfunctional”. In fact, the term was already invented four years ago by Dominic Barton of McKinsey and was swiftly embraced by, among others, Al Gore and Prince Charles to call for a major overhaul of current business practices of listed companies and fund managers. Recently the term has reached a new level of prominence after presidential candidate Hillary Clinton, in a series of appearances, complained that the “tyranny of the next earnings report” resulted in companies’ paying “too little attention on the sources of long-term growth: research and development, physical capital and talent”. Unsurprisingly, Mrs. Clinton’s proposed remedy consists of a mixture of higher taxes and more regulation.
Harald Egger am 15th July 2015 Ⓒ iStock.com
The stock exchanges have been moving sideways and down for weeks. There are of course enough uncertainty factors such as the Greek crisis, the correction on the Chinese stock exchange, and the expected interest rate increase in the USA that can serve as explanation. However, one factor that has (so far) been left out of the equation is the fact that company earnings are hardly growing. The increase on stock exchanges is fundamentally justified if the valuation levels are rising across the board without earnings growth (e.g. price rises due to the low interest rates) or if company earnings themselves are rising (thus justifying the valuations). The interest rates can actually not fall any further, which means that the stock exchanges cannot get any impulse from that end.
How does the other factor, earnings growth, look? There is no clear answer to that question. Some market participants are rather sceptical. In the following I will try to shed some light on these factors, company earnings and earnings momentum.
Paul Severin am 01st July 2015 Photo: iStock
Developed equity markets are in the 6th year of a robust upward move. The MSCI Developed World Index rose by almost 18% per annum over the period (Mar 2009-June 2015) in Euro-terms. However, momentum has stalled in recent months. Stepan Mikolasek, new head of equity management of Erste Asset Management, names the main reasons: surprisingly weak US economic growth in the first quarter, concerns about China’s economy, the fear of a Fed rate hike and growing risk related to the Greek situation.
Peter Szopo am 24th June 2015 © Fotolia.de
The longest eleventh hour in recent history is drawing to a close. However, while the negotiations earlier this week seem to have narrowed the gap between Greece and its creditors, a final deal has not emerged yet.
Peter Szopo am 03rd June 2015 © Fotolia
Based on earnings expectations emerging markets equities are currently valued 27% below the price/earnings ratio of developed markets equities. The long term average of this discount is 19%. Closing the gap is a question whether the confidence of the markets in the earnings expectations is solid enough to facilitate a re-(e)valuation.
Paul Severin am 22nd May 2015 © iStock
Environment and sustainability are gaining more and more importance in today´s society. In this interview about his special fund, Clemens Klein reveals why solar stocks are interesting in particular.
Sevda Sarp am 24th April 2015 © iStock.com
In Turkey, the impact of the currency fluctuations are being discussed and even an ordinary Turk on the street knows what it means for the currency to depreciate. For example, during a cab ride, you may have a very deep economic discussion with the taxi driver about the dollar and the Turkish lira. This is as a result of the crises Turks experienced in the past – unfortunately there was more than one! This in turn, has enabled Turks to have their guard up automatically to cope with the strong dollar and there is a dollar investment mechanism in every household immediately if they get a whiff of the depreciating Turkish lira. Corporates also got used to foreign currency fluctuations, but as an import and export oriented country, the depreciating lira has some negative implications on the corporates as well as economic indicators.
After quite a stable period the Turkish lira has started depreciating against the dollar since the final months of 2014 due to a combination of: i) President Recep Tayyip Erdogan’s comments regarding the Central Bank of Turkey, ii) the ECB’s quantitative easing program, iii) woes about Greece’s exit from the EU and iv) the FED’s rate hike expectations.
Peter Szopo am 07th April 2015 Foto: iStock
The US central bank, the Fed, is very likely – almost 90%, according to Fed funds futures – to raise the Fed funds rate this year. The expected rate hike has been one of the dominating topics on the financial markets for a year. The bursting of a mega bubble, rising pressure on fragile emerging markets, and the end of years of a share market rally in the USA are the most commonly mentioned worries in this context. None of which is overly far fetched, as we have indeed seen all of these scenarios before. Still – history prompts the conclusion that there is no need to panic, at least not when it comes to equities.