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We cannot rule out a slowdown in an environment where the economy could continue to show signs of resilience, and thus maintain pressure on rates, according to Guy Wagner, Chief Investment Officer at BLI – Banque de Luxembourg Investments.

Listen to the full podcast

  • Conflict in the Middle East: what are the potential impacts on the economy?
  • What are the pockets of resilience that are preventing the onset of recession?
  • What is the best investment strategy if recession hits?
  • United States: why has inflation slowed?
  • Can you explain why Germany is no longer the economic engine of Europe?
  • China: why is the situation complicated?
  • Europe: what impact will the property market have on the rest of the economy?
  • Has the improvement in the equity markets given way to a downturn?
  • Is the energy market set to remain buoyant?
  • What lies behind the rising equity market indices in the first half?
  • Could we have predicted the outperformance of the financial markets in Japan?
  • What can we expect for the rest of 2023?
  • What is driving gold’s resilience in the current economic environment?

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Guy Wagner, what are the potential impacts of the escalating conflict in the Middle East?

“The situation in the Middle East will probably increase uncertainty for investors and make them more risk averse. Logically, one of the most likely consequences is higher oil prices – which would reinforce the “trend” towards a slowdown in the economy.”

In the latest issue of Perspectives, you point out pockets of resilience that are preventing the onset of recession. Can you tell us what they are?

“Looked at regionally, consumer spending has held up relatively well in the United States essentially. Households are spending the savings built up during pandemic lockdowns, which is helping to support the services sector. So restaurants and travel are doing well, for instance.”

In other words, if there is a recession, it will come from Europe?

“You could almost say that we’re already in recession in Europe. But, the US economy remains key to how the financial markets react. The European economy doesn’t carry the same weight.”

Should investors fundamentally change their investment strategy if there is a recession?

“Generally speaking, the current environment is good for bond markets, especially for high-quality bonds and – inevitably – less so for equities, since corporate earnings decline in a recession.”

The upswing in equities markets in the first half of the year has given way to a predictable downturn. Can you explain?

“Yes. And this was expected, especially in technology stocks, which soared at the start of the year powered by AI mania. The frenzy has cooled somewhat since, leading to a correction in the sector. On the other hand, energy stocks remain buoyant. I think oil prices will trend upward in the medium and long terms, although the recessionary trend could temporarily pull back prices in the near term. But ultimately, prices will continue to rise as supply struggles to meet demand.”

Again in “Perspectives”, you also talk about the outperformance of the financial markets in Japan. Is this the right time to invest?

“In my opinion, the Japanese market is still an attractive investment opportunity. But naturally, caution is called for: if the global economy were headed for recession, the earnings of many Japanese companies would be exposed, which could, temporarily, alter our assessment of this market’s potential. In the longer term, Japan remains a very attractive market.”

And gold? Has it retained its shine, despite the circumstances?

“We expected the steep interest rate hikes to drag down the price of gold. But it held up well, primarily on relatively strong demand from central banks. Many countries, starting with China, are keen to offer an alternative to the dollar-based financial system. They see gold as potentially playing a big role in such a system, which explains why central banks are buying the metal, especially Eastern central banks. We think gold is still a safe haven and will continue to rise over time.”s


Guy Wagner, Chief Investment Officer

An economics graduate from the Université Libre de Bruxelles, Guy joined Banque de Luxembourg in 1986 where he was head of the Financial Analysis and Asset Management departments. He was appointed Chief Investment Officer of BLI – Banque de Luxembourg Investments in 2005.

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