Interview with Xavier Hannaerts
It is in a particular environment that Xavier Hannaerts, Head of Investments at BCEE Asset Management, speaks about developments in the context in which asset...
There have been no substantial changes in the economic environment since our last interview. In the United States, the Trump administration’s pro-cyclical tax policy increased the budget and the deficit during a phase of economic growth and, in doing so, also reinforced the robustness of the economic cycle. The US economy currently appears relentless. The eurozone is approaching the time when key rates will return to normal levels, which bodes well for macroeconomic growth.
These political issues may have an impact on the economic outlook. Still, the global economy has overcome these kinds of issues before, and certain sectors are sufficiently strong that they will continue to grow.
As a result, we have decided to be cautious and keep a neutral attitude by extending duration, abandoning our aversion to bonds and opting for an impartial stance towards US corporate bonds while remaining underweight in European credit. In our opinion, however, there is a drawback—the ECB’s asset purchase programme (which increased corporate bond valuations) ended at the end of December. All in all, we are making it our mission to focus on quality and, as such, are being extremely picky in our stock selection.
Rumours of a possible recession are spreading due to the fact that the yield curve in the US is moving towards inversion, a precursor of an economic slowdown.
This state of affairs has generated a great deal of media buzz, but the in-depth analysis we have conducted clearly reveals that the likelihood of a recession in the next year is low. The time between a yield-curve inversion and the start of a recession varies, as do the reasons underlying recessions.
Past recessions are not indicative of future ones. However, the US yield curve is an excellent measure of a country’s monetary tightening policy, which impacts the real economy over time. The inverted curve is also a catalyst for increased monitoring from central banks and is subjecting policies to greater attention. This year’s tone is one of monitoring and responsiveness. Our priority is to follow economic indicators very closely and to avoid drawing hasty conclusions with a view to making considered decisions and adapt our management style as best we can.