4 minEquities and gold: the assets to focus on
Guy Wagner With inflation stabilising above the central banks’ targets and political volatility picking up in Europe and the United States, Guy Wagner, CIO of BLI - Banque de Luxembourg Investments, recommends active portfolio management and emphasises the importance of real assets to counteract the decrease in the value of money.
Listen to the full podcast
- A positive year on the financial markets in 2024
- The new Trump administration: difficult to measure the economic impact
- Public deficits, a growing threat to global economic stability
- Structurally higher inflation in the medium and longer term
- China is looking to reduce its dependence on the dollar
- The euro weakened by economic and political instability in France and Germany
- Why is paper money losing value?
- Paradoxes in the index-based management boom
- Active management, central to investment
- Why are there opportunities in European equities?
- Gold: the medium and longer term outlook continues to be favourable
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Guy Wagner, overall, how would you sum up 2024?
On the equity markets, it was a relatively good year, particularly in the United States. From an economic point of view, the global economy continued to grow at a very moderate pace and inflation stabilised at around 3%. That means it remains well above the 2% target set by the central banks, most of which have cut their key interest rates. This would seem to indicate that the 2% ceiling is no longer very relevant.
To what extent is Donald Trump's return to the White House likely to disrupt the global macroeconomic situation?
It's hard to say at the moment, because some of his stated objectives seem to contradict each other. We don't really know what exactly his priorities are, which makes it impossible to have a very clear view of the economic implications.
In the latest edition of Perspectives, you point out that China wants to set up an alternative to the historical financial system based on the dollar and US government bonds. Do you see this as a side issue or is it an early indication of a sea change in the established order?
I would say the latter! It's a fundamental trend that will continue because we are seeing the emergence of several economic blocs based on different models or political ideologies. So I think this process is only just beginning.
Does the very unstable political and economic situation in Germany and France represent a threat to the overall health of the eurozone?
Yes, and I would even say a threat to the euro itself because we are now in a situation where the two major countries in the eurozone are facing difficulties and their interests are not the same. There is even a question mark over whether the euro can survive.
Does the fact that fiat currencies have lost much of their value in terms of purchasing power in recent years make equities an even more attractive investment vehicle now?
They are certainly a good way of protecting yourself against loss of purchasing power. The focus should undoubtedly be on real assets – that means equities, gold, etc. – rather than monetary assets such as bonds. The problem is choosing the right equities in an environment dominated by speculation and the attraction of passive, tracker management, where investments keep on being channelled into the same markets and the same stocks. We find ourselves in the somewhat incongruous situation in which the US market represents around 70% of the world market, and yet just 15 stocks account for around 35% of that US market. Logically, one might expect to find better investment opportunities outside these stocks but, with the blinkered trend towards index management, there is a risk of underperforming.
Is that why you prefer active management?
Yes, for me active management is investment in its purest sense. We try to find good quality companies, we invest for the long term, and we are mindful of the price we pay. Index management is based on the market capitalisation of companies: so the higher the share price, the higher the market capitalisation, the greater the weight of these companies in the index, and the more money they attract! Every rise generates a further rise. And to some extent the reverse is true for neglected companies that are cheap. There is a risk that they will become even cheaper.
What about gold, after a record year in 2024? As an investment, is it still more attractive than ever, despite its price being at an all-time high?
Yes, over the medium and longer term. Gold is positioned as an alternative to dollar-based systems, which partly explains the very strong physical demand for it from Asia. It also offers a degree of protection against the devaluation of ‘paper’ money. That’s why its medium- and long-term outlook remains very favourable. But short-term corrections cannot be ruled out.
