Financial markets dialogue | Banque et Caisse d'Epargne de l'Etat, Luxembourg
25th October 2018

Financial markets dialogue for the fourth quarter

Marc Fohr, Head of Investments at BCEE Asset Management, discusses the financial markets.

How are international financial markets faring?

In the third quarter, financial markets benefited from sound economic data in developed countries. In the US, real GDP grew at an annual rate of 4,1% with confidence hitting record levels: the impact of tax cuts is tangible and employment growth is accelerating.

The eurozone economy remains steady, on the periphery of the commotion of the trade war and the political situation in Italy with its ensuing risks: unemployment is declining and GDP growth is consolidating above the 2% threshold. Meanwhile emerging markets have had a rocky quarter: Turkey is in the midst of a full debt and currency crisis, and Argentina and Brazil are witnessing the collapse of their currencies against a backdrop of financial crisis and corruption.

Second-quarter GDP in the US: 4,1% p.a.
Second-quarter GDP in the US: 4,1% p.a.
icône prévoyance
Impassive economic situation in the euro zone
Tourmented quarter for emerging markets
Tourmented quarter for emerging markets

How would you define the current environment? What choices have you made in light of this environment?

From a bonds perspective, we favoured purchases of public debt in Spain and Portugal over Italian debt given the political situation in Italy, where there is little transparency as to the government’s budgetary intentions.

In the US, the yield curve has flattened, highlighting that the economic cycle is well advanced. On balance, the economic environment is favourable.

Moreover, whilst the potential for improvement in financial indicators seems to be approaching its limits, we are taking a flexible and cautious approach in our decisions.

We have a distinctive scenario currently: economic fundamentals are sound and central banks continue to gradually wind down their quantitative easing programmes.
Marc Fohr - Head of Investments, BCEE AM

What is the outlook for the equity market? What is your feeling on this?

International equity markets have continued the upward trajectory begun several years ago. They have performed in an agitated political world, against the backdrop of tensions from a trade war and a symptomatic resurgence in volatility, not forgetting the geopolitical quarrels threatening the Middle East, and Brexit, on which no agreement has yet been found.

Economic indicators and corporate publications substantiate the current positive performance, with one word of caution: the environment is higher risk in equity markets, and we are standing by to deal with the potential pitfalls that this implies. We now have a neutral recommendation for all regions.

Panorama Financier 2018-04

The coming months will reveal the resilience of the global economy and the willingness of political leaders to make a positive contribution to it.
Marc Fohr - Head of Investments, BCEE AM

The finance, industry and energy sectors are our favourites, whilst we have moved our outlook for the consumer discretionary sector to neutral. We have also raised our outlook for non-cyclical consumer goods to neutral, as valuations are again interesting following the underperformance of recent quarters.

The economic cycle is running its course in developed markets: in the US, growth is pushing the cycle length to new records, and the cyclical upturn is well underway in Europe.

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