Following significant price gains in recent months, the stock markets took a breather in June. Technical factors and concerns about a possible market overvaluation have slowed the momentum. From an economic perspective, however, the environment for risky asset classes has actually improved further – though that has never prevented price corrections.
Note: Forecasts and past performance are not reliable indicators of future performance.
The global economy is growing steadily
The latest economic data continues to point to global growth at the trend rate of about 2.5 percent on an annualized basis. In particular, the most recent purchasing managers’ indices from industrialized countries show that economic activity is developing steadily.
One important positive factor is the recent sharp drop in energy prices. While high oil and gas prices have weighed on purchasing power in recent months, the decline in oil prices is now helping to curb inflation and is thus boosting purchasing power. The hope is that this will lead to an improvement in sentiment and growth.
At the same time, geopolitical risks have eased somewhat. The prospect of a permanent reopening of the Strait of Hormuz reduces the risk of renewed energy shortages and extreme price spikes.
The US Remains the Engine of Growth
The US economy continues to show particular resilience. Inflation-adjusted consumer spending is rising steadily, and corporate investment is also gaining momentum. Leading indicators such as orders for capital goods and shipments point to a sustained high level of investment activity. Overall, the Atlanta Fed’s model for estimating US economic growth points to strong growth of 2.5% in the second quarter (annualized).
The labor market is also proving to be surprisingly strong. The number of new jobs created is well above the level needed to maintain a stable unemployment rate. Consequently, the chances are increasing that the unemployment rate will fall even further in the coming months.
The Eurozone is slowly improving
The outlook is also increasingly brightening in Europe. Both the Ifo Business Climate Index and the European Commission’s Economic Sentiment Index have risen recently. Although both indicators are still below their highs from the beginning of the year, the trend is clearly upward.
Another positive development is the trend in lending: After recently declining, the volume of loans is now rising again – an important leading indicator of a gradual economic recovery. In terms of GDP growth, this translates to an estimated increase from 0.5% (annualized) in the second quarter to 1% in the third quarter.
The IT and AI Boom Remains a Growth Driver
A key driver of current developments remains the ongoing boom in information technology and artificial intelligence. Heavy investment in digitalization and semiconductors is having a positive impact on production, exports, and corporate profits worldwide.
This is particularly evident in the export figures from Asia: Taiwan, South Korea, and Singapore continue to post exceptionally high growth rates in the technology sector. In the medium to long term, this investment boom could even boost productivity sustainably, thereby enabling higher economic growth with moderate inflation. In the short term, however, the increased demand is also leading to specific bottlenecks, such as in semiconductors. This is driving up prices in these sectors.
Inflation remains the central issue
Despite falling energy prices, core inflation is likely to remain above the central banks’ 2 percent target in many economies. While there are no signs of a renewed acceleration in price increases in the U.S., inflation levels remain elevated. Overall, inflation has been above the 2% target since 2021, which increases the risk of a sustained rise in long-term inflation expectations.
Economists also expect overall inflation to decline in the eurozone. The key factor, however, will be whether or not higher energy prices have had a lasting impact on other sectors of the economy.
Conclusion
The overall economic environment remains positive at present. The economy is showing stable growth, geopolitical risks have eased somewhat recently, and the ongoing technology boom continues to provide a positive boost to growth. At the same time, despite isolated interest rate hikes, central banks are still supporting the economy as a whole with a comparatively expansionary monetary policy.
Short-term fluctuations in the stock markets are always possible and are not unusual following sharp price increases. From a fundamental perspective, however, there are currently many indications that the environment for risky asset classes remains favorable—provided that central banks do not tighten monetary policy too aggressively.
Please note: investing in securities involves risks as well as opportunities.
Legal disclaimer
This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. The language of communication of the sales offices is German and the languages of communication of the Management Company also include English.
The prospectus for UCITS funds (including any amendments) is prepared and published in accordance with the provisions of the InvFG 2011 as amended. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in conjunction with the InvFG 2011.
The currently valid versions of the prospectus, the Information for Investors pursuant to § 21 AIFMG, and the key information document can be found on the website www.erste-am.com under “Mandatory publications” and can be obtained free of charge by interested investors at the offices of the Management Company and at the offices of the depositary bank. The exact date of the most recent publication of the prospectus, the languages in which the fund prospectus or the Information for Investors pursuant to Art 21 AIFMG and the key information document are available, and any other locations where the documents can be obtained are indicated on the website www.erste-am.com. A summary of the investor rights is available in German and English on the website www.erste-am.com/investor-rights and can also be obtained from the Management Company.
The Management Company can decide to suspend the provisions it has taken for the sale of unit certificates in other countries in accordance with the regulatory requirements.
Note: You are about to purchase a product that may be difficult to understand. We recommend that you read the indicated fund documents before making an investment decision. In addition to the locations listed above, you can obtain these documents free of charge at the offices of the referring Sparkassen bank and the offices of Erste Bank der oesterreichischen Sparkassen AG. You can also access these documents electronically at www.erste-am.com.
Our analyses and conclusions are general in nature and do not take into account the individual characteristics of our investors in terms of earnings, taxation, experience and knowledge, investment objective, financial position, capacity for loss, and risk tolerance. Past performance is not a reliable indicator of the future performance of a fund.
Please note: Investments in securities entail risks in addition to the opportunities presented here. The value of units and their earnings can rise and fall. Changes in exchange rates can also have a positive or negative effect on the value of an investment. For this reason, you may receive less than your originally invested amount when you redeem your units. Persons who are interested in purchasing units in investment funds are advised to read the current fund prospectus(es) and the Information for Investors pursuant to § 21 AIFMG, especially the risk notices they contain, before making an investment decision. If the fund currency is different than the investor’s home currency, changes in the relevant exchange rate can positively or negatively influence the value of the investment and the amount of the costs associated with the fund in the home currency.
We are not permitted to directly or indirectly offer, sell, transfer, or deliver this financial product to natural or legal persons whose place of residence or domicile is located in a country where this is legally prohibited. In this case, we may not provide any product information, either.
Please consult the corresponding information in the fund prospectus and the Information for Investors pursuant to § 21 AIFMG for restrictions on the sale of the fund to American or Russian citizens.
It is expressly noted that this communication does not provide any investment recommendations, but only expresses our current market assessment. Thus, this communication is not a substitute for investment advice.
This document does not represent a sales activity of the Management Company and therefore may not be construed as an offer for the purchase or sale of financial or investment instruments.
Erste Asset Management GmbH is affiliated with the Erste Bank and austrian Sparkassen banks.
Please also read the “Information about us and our securities services” published by your bank.
More on the topic
Weekly Winzer: USA and Iran Reach Agreement
The US and Iran have agreed to a ceasefire and the reopening of the Strait of Hormuz. The markets are reacting positively, but this does not mean that all risks have been eliminated.