Guy Wagner, despite a very turbulent start to the year in the economic and financial sphere, the global economy is holding up well.
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- The economy: what's the outlook?
- United States: what are the consequences of a recession on the rest of the world?
- Europe: what are the impacts of the banking turmoil?
- Inflation: is it here to stay?
- Financial markets: will the rebound live up to expectations?
- Investments: what are the opportunities today?
- Gold: a long-term uptrend?
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Guy Wagner, despite a very turbulent start to the year in the economic and financial sphere, the global economy is holding up well. How do you explain this resilience?
"Clearly the economy is still driven by the services sector, supported by a buoyant job market. Unemployment rates are fairly low and wages are generally increasing in nearly all countries. In addition, economies are opening up again and people are continuing to travel and eat out, for example. This is all contributing to shoring up the economy for now.”
Nevertheless, a few indicators are starting to flash red, such as weakness in the property sector and the slide in corporate earnings. Is a downturn on the cards in the coming quarters?
"Probably. It often takes 12 to 18 months for the effects of monetary policy tightening to feed through. If we take March 2022 as the starting point for monetary tightening, we can expect a fairly sharp slowdown in the economy in the second half of this year.”
What is the outlook in terms of inflation, which continues to plague the daily lives of many consumers?
"Official inflation has been falling in recent months. In particular, we’ve seen a significant drop in the United States where the inflation rate has fallen from 9% in June 2022 to its current level of 5%. However, looking at the core inflation rate, excluding commodity and food prices, inflation is not really falling. This is also related to wage developments.
In the eyes of the central banks, inflation is still too high. In the short term, it’s likely to continue to fall, but in the long term, there's a fear that inflation will persist.”
In this context, after a difficult year in 2022, the financial markets have, as expected, started to rise again. Has the rebound lived up to expectations?
"Let's just say it's reasonable. In the first quarter, it was around 7 to 9% for the key indices depending on the region. However, we should remember that the fall in 2022 started from very high valuation multiples. If the sharp economic slowdown is confirmed, the risk now for the equity markets would be the emergence of a new bearish wave.”
What can a private bank say to reassure a worried investor?
"Generally speaking, we continue to favour the shares of quality companies. Even though there may be a temporary blip in their prices, they still have the capacity to do well. Basically, even after a recession, this kind of company often emerges stronger, having gained market share or taken over some competitors.
At the same time, fixed-income investments, such as term accounts or bonds, are offering slightly higher returns again, although they are still not particularly attractive. For an investor who is reluctant to participate in the stock market, there are clearly some new and potentially rewarding alternatives to the equity markets.”
The decline in bond yields has inevitably been favourable to so-called growth stocks, particularly in technology. Is this a good time to invest?
"Yes, but on the other hand, history has taught us that past winners are rarely those of the future. Although tech stocks, especially the very large companies, have performed well recently, it would be surprising if they were also the big winners in 10 years’ time. Their earnings and valuation multiples are already much higher than 15 years ago. Over the long term, these companies simply won't be able to offer the same returns as they do now.”
What about gold, which is at a three-year high after rather a bumpy ride last year? Do you think this trend will last?
"Absolutely. With governments having extremely high financing needs, it is no longer possible to maintain very high interest rates over the long term, while the need to finance their deficits is increasingly critical. This will create an increase in the money supply, in all currencies. At the same time, there are so-called ‘hard’ currencies, like gold, the supply of which cannot mathematically increase much. So it's bound to appreciate more, compared to paper money, and be a key component of a diversified portfolio.”