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Market Monitor: After the market correction, confidence outweighs
The year 2018 had started on such a promising note – is what we all were thinking. But at the beginning of February, the market taught us a lesson. As a result, the discussions at our first Investment Committee of the year at the beginning of February were interesting ones.
How does inflation work? – Part 2: Inflation drivers
There are many factors that may affect inflation. Also, the weights of certain factors may vary across countries. Take the development of the exchange rate, for example.
Inflation worries burdening stock exchanges – part 2: the macro perspective
Equity indices have undergone a global correction in the past days. The Dow Jones index has shed more than 10% from its January high. What is the macro-economic reason for the correction?
Strong growth and rising rates
At the beginning of 2018, economic indicators are confirming the recovery scenario. Above all, the yields of government bonds are on the rise. Why is that the case, and what does it mean for the financial market as a whole?
Inflation: a general overview – Part 1
At the moment the environment on the markets is very supportive. The economy is booming, the big central banks are still buying government bonds on aggregate and are thus keeping yields low, and the tax reform in the USA has improved the sentiment further over the past weeks. In addition, most asset managers agree on the status quo. Given this background, people ask “when will the party end?”. An increase in inflation is (one of) the usual suspect(s).
Czech Presidential Election and the reaction of the markets
With both rounds of the Czech presidential election behind us, we can now take a look back at some of its highlights. Incumbent Milos Zeman reaped a narrow edge over his challenger Jiri Drahos.
Global equities: Five charts on where we stand
2017 was an excellent year for stocks. Developed markets were up more than 16% in local currencies, emerging markets almost 28%. How will the markets develop in 2018?
European banks: Outlook for 2018
European banks (as measured by the Stoxx 600 Banks Index) had a decent year in 2017: the index climbed more than 8%, slightly outperforming the broader European market (Stoxx 600 Index). The strongest positive impulse came from the French elections in April last year, where the populist threat was successfully defeated by Emmanuel Macron, arguably the most market-friendly candidate among the contenders. A robust European economy and a solid business sentiment throughout the year also helped banking shares go higher.
Interview: “Future 2050 – the era of sustainability and smart machines”
Interview with Ulrich Eberl, one of the most renowned German-speaking scientific journalists and futurologists. Among the books he has published are “Zukunft 2050 – wie wir schon heute die Zukunft erfinden“ (“Future 2050 – how we are inventing the future today”) and “Smarte Maschinen – wie Künstliche Intelligenz unser Leben verändert“ (“Smart machines – how artificial intelligence changes our lives”).
Bitcoin Basics
Bitcoins were developed in 2009 as a virtual, digital currency by one person or group with the pseudonym Satoshi Nakamoto. Bitcoins are not physically tangible and are thus also difficult to grasp mentally for many.
Ten economic hypotheses for 2018
The current environment is very positive for the capital markets: strong growth, low inflation, supportive monetary policies, good earnings growth, and low volatilities, i.e. fluctuations. Also, the numerous risks have not had a significantly negative impact on prices. However, the phase of rising prices started as early as March 2009.
Best of Erste AM Investment Blog 2017
2017 was a positive year on the global capital markets. We have analysed which blogs were the most popular ones last year.
2017: a positive year on the global capital markets
Capital markets recorded a positive year of 2017. The performance of the various asset classes was of the textbook variety: the higher the risk, the higher the return.
Market Monitor: risky markets have come far
Earlier this week, we convened the last Investment Committee of 2017. The general risk appetite of the team has not changed vis-à-vis the previous month (from 78.85 percent to 79 percent on our 0 – 100 percent scale). The team continues to see the future optimistically, with a resulting “risk on” stance.
Capital markets outlook for 2018: Will the party hold on?
2017 is drawing to an end, and the bottom line is positive. The outcome is significantly better than we had expected. Since the financial crisis in 2008, the global economy has never expanded more quickly and especially concertedly than in 2017. Also, inflation has surprised on the downside, falling short yet again of the expectations held by central banks and analysts.
Xi Jinping’s New Era
Certainly, the National Congress of the Communist Party of China held every five years in Beijing is an important political event, but this year’s Party Congress was a milestone. It marked that a new era has begun in China. President Xi Jinping cemented his power further as China’s paramount leader, a leader, who might rule the country on the coming decade, a leader, who has high ambitions.
Emerging markets – not a pure commodities story any longer
The global economy is experiencing significant growth, and the emerging markets have felt the increased economic growth rates as well. Even in problematic countries such as Brazil or Russia, the situation has been picking up due to the increased oil price.
Equities: Optimistic, but cautious
2017 has been another bumper year for global equities with the MSCI All Country Index gaining ca. 18% in the first ten months in dollar terms. November, however, has not started well for risky assets.
China on the way to new strength
Driving through Beijing you will see megalomania without limits – in houses, traffic, and people. A trip in a tuk-tuk, which looks like a motorcycle on three wheels, allows you a short glance into the past. It is at these moments that the rift between rich and poor becomes obvious.
Hyperinflation in Venezuela
Venezuela is in a difficult situation. Hyperinflation describes the economic environment best. For 2017, the IMF estimates a consumer price inflation of 650% y/y, and for 2018, the estimate is 2,300%.
Market Monitor: Optimism on the rise
This week we held our monthly Investment Committee meeting. Although only little has changed with regard to the overall economic picture, we were having a few interesting discussions that we would now like to share with you.
An impressive stunt
The Council of the European Central Bank pulled an impressive stunt at the monetary policy meeting on 26 October. ECB President Mario Draghi announced to reduce the extremely supportive monetary policy in the near future while …
IMF-meetings in Washington: positive outlook for emerging markets
The following points reflect my impressions at the presentations that I attended at the IMF-meetings in Washington from 12 to 15 October 2017.
Disruption from Catalonia
The events in Catalonia are a new disruptive political element on the capital markets. The basic question is whether the generally favourable environment for risky assets is sustainable.
Renmimbi – a managed currency
Long enough we have heard about the depreciation of Chinese currency Renmimbi (RMB), but this year RMB has showed rather unusual movements.
Market Monitor: positive for risky asset classes
Once a month the Investment Committee of Erste Asset Management convenes in order to discuss the medium-term market outlook. We are going to start a new blog, where we will report on what drives our investment professionals and what risks they see.
Urbanisation in Asia: challenge and opportunity
Asia’s cities are growing and growing, presenting the urban infrastructure with great challenges. Thanks to technical progress, the relevance of environmentally friendly transport solutions is on the rise. Investors can benefit from this trend, as Gabriela Tinti points out in an op-ed article for the magazine “Global Investor”.
US central bank will start reducing bond holdings in October
The most important central bank in the world, the Federal Reserve of the USA, has announced a historic decision as a result of its FOMC meeting on 20 September: the central bank balance sheet, hugely inflated in the wake of the bond purchase programme, will be gradually reduced from October onwards. Generally speaking this is […]
Economic scenarios 2018
Q3 is drawing to its end. Traditionally, this heralds the development of a strategy for the next year, an important part of which is the creation of scenarios. On the basis of the status quo, we have drawn up three further different scenarios in this blog entry.
European bank shares picking up
After years of drought, European bank shares have shown a solid performance in the year to date.
US debt ceiling keeping the financial markets on their toes
The Trump administration should be keeping the financial markets on their toes in the coming weeks. Yet again, the issue is the government debt which will soon reach its statutory maximum.
Tailwind for biotechnology companies
Biotechnology shares have been among the top performers in the past ten years. After the above-average performance from 2010 to the beginning of 2015, hedge funds set off a consolidation that is now coming to an end. The NASDAQ biotechnology index, the most important barometer for biotech shares, has gained 25% in the year to date (source: Reuters Datastream, as of 31 August 2017).
Global stock markets: Break, correction or worse?
The probability that there is another leg up for global equity markets is bigger than a significant correction in the near-term. However, there are no guarantees when it comes to investments in stocks in contrast to, as somebody said, the purchase of a vacuum cleaner. In case that the earnings momentum is cooling down or, for example, the macro-backdrop deteriorates, an extended period of equity markets going sideways or a correction cannot be excluded.
Growth picking up in the emerging economies
Economic growth has increased significantly on a global scale and is broadly supported. According to our preliminary estimate, global GDP recorded a growth rate of 3.7% from Q1 to Q2 (annualised). While the developed economies have presumably grown by 2.7%, the emerging economies posted a growth rate of 5.2%. In this article, we would like to take a closer look at the emerging markets on the basis of classic economic indicators.
Solid Growth
Some ten years after the outbreak of the Great Recession, global economic growth is positive and broadly based, inflation is low in the developed economies and falling in important emerging economies, and monetary policies are very supportive, cautious, and predictable. At the same time, company earnings growth has increased significantly, and the volatilities of many asset prices are low. This environment is generally positive for risky asset classes.
Quo Vadis, Federal Reserve? – Part 3
I will be upfront about it: to me, the Taylor rule is still a helpful tool to assess the future monetary policy of the US central bank. However, it should not be used as blueprint without thinking it through. Instead, it should be seen as heuristic tool that helps structure one’s analysis.
Quo Vadis, Federal Reserve? – Part 2
Since 2008, the key-lending rates in the USA seem to have been significantly too low as measured by the Taylor rule. With some economists blaming Alan Greenspan’s loose monetary policy as partially responsible for the financial crisis of 2008, the question is whether we are in for a déjà-vu.
Style management in practice: part 2
Having defined and explained various management styles in equity management in part 1, we will now have a look at the specific styles and their return/risk ratio over time.
Quo Vadis, Federal Reserve? – Part 1
The US central bank has embarked on a cycle of interest rate hikes. The question is: by how much will the interest rates increase still, and at what point will it reach a level detrimental to the economy, where equities should be regrouped into asset classes less sensitive to the economic cycle?
Style management in practice: part 1
A clear sense of style is not only important in fashion, but more and more so in equity management as well. But what does “style” mean in equity management? Do stylistic preferences change over time, like in fashion? If so, what triggers those changes? Questions upon questions, but before we go into detail in part 2 of this series, let us first clarify what we mean by style(s).
Alternative investment strategies: part 3
In Part two of this series on alternative investment strategies, we described the most important strategies “trend following”, “global macro”, and “long/short equity”. In this Part three, we will be looking at approaches that are less well-known but equally tried and tested.
Which factors drive equity markets?
It is almost impossible to speak with fund managers and not address the economy or monetary policy. Why is that so? This blog entry will try to answer the question on the basis of data from the US equity market from 1950 onwards.
Monetary policy of central banks is tightening up
Volatility has increased on the markets. The main reason for this has not occurred often in the past years: statements by the central bankers according to which the extremely expansive monetary policy will be reeled in. Are we going through a trend reversal?
China makes A-shares accessible to the global market
China has been increasingly opening up to the global market. Last year the Renminbi was taken into the currency basket of the International Monetary Fund in October 2016. Now, another step towards liberalisation has followed. China has cleared A-shares for international trade via trading platforms.
Germany: is the economy about to face a hot summer?
The IFO business climate index calculated by the Munich-based IFO Institute is regarded as the most important German economic indicator. At 115.1, the value released for June last week was the highest since the launch in January 1991. It was also clearly above the value that had been expected by the financial analysts on average. The signs for substantial economic growth in Germany seem favourable.
Alternative investment strategies: part 2
After illustrating what alternative strategies are in part 1 of this series, how they work, and what benefits and disadvantages they come with, we would now like to discuss some of the most important representatives of this set of strategies. In the following strategies (also called hedge funds), the majority of the capital invested is allocated to alternative models.
After the interest rate hike is before the interest rate hike?
Imagine a fairy that grants you three wishes. What would you wish for? The answer would be very easy for me. I would just like to know if the economy is caught up in a recession of has embarked on an expansionary phase a year from now…
Financial know-how – this is how an equity fund works
Shares (equities) and equity funds – the same or not? Only a small minority of Austrians invest directly or indirectly (via equity funds) in shares. Is it the fear of losses or the lack of knowledge about this asset class that make investors shy away from it?
Increase in inflation has come to an end for now
Two developments are prominently noticeable on the markets at the moment: on the one hand, the indicators of real economic growth suggest a stable real economic growth rate of about 3%. On the other hand, we have seen global consumer price inflation decline since the beginning of the year. The reflation phase, i.e. the general increase in inflation in the second half of 2016, seems to be over (for now).
A niche product with solid returns: hybrid and subordinated bonds with investment grade rating
Author: Christin Bahr, Product Management Securities Erste Group It has been half a year since the launch of the new hybrid bond fund. Reason enough for us to talk to Roman Swaton, Senior Fundmanager.