The sun is shining, the corona restrictions are being loosened more and more and the politicians are generously planning aid programs in unimagined sizes, true to the motto “block – do not spill”. In this environment, a certain amount of carelessness spreads on the capital markets and share prices continue to rise. You can read about how we assess the current situation in the current issue of “Finanzmarkt aktuell”.
New aid money for Europe
In addition to the USA and China, Germany is one of the countries that is most supportive of its own economy in the crisis. The savings policy of the past few years has given us this important scope. However, we are increasingly criticized for this policy across Europe, as there is a fear of further strengthening the weak and weakening the weak after the crisis. Germany alone accounts for an impressive 50 percent of the many aid billions that have been decided by the individual nations across Europe. The EU now wants to help the “weak”, and EU Commission President Ursula von der Leyen used the power of large numbers to present her 750 billion euro reconstruction plan. 500 billion of these are expected to go to Europe as non-repayable grants, which are most economically affected by the COVID-19 pandemic. The remaining 250 billion are invested as loans. According to previous plans, around 40 percent of the total would flow to Italy and Spain. The money is to be earmarked for national programs, digitization and the limitation of climate change. So far so good. The problem is, however, that all national country parliaments have to agree, and funding is far from secure. The plan is to be counter-financed by issuing long-term bonds at EU level, i.e. quasi-modified euro bonds. The repayment could be financed through the introduction of new taxes. There is therefore sufficient need for discussion until the aid will actually flow. By then, the “strong” could have achieved a valuable economic advantage. The current economic data shows the expected bottoming out and a first recovery. The purchasing manager indices in Europe and the German ifo index were able to recover from their lows. It will be interesting to see how far the recovery will take, as both consumers and companies continue to be reluctant to invest.
The conflict between the super nations is growing again
The exchange of blows between the USA and China is picking up speed again. President Trump has identified China as the main culprit of the current crisis and is thus distracting from its own omissions. The Chinese also dislike the Hong Kong policy of the Americans. In return, Chinese companies may find it difficult to access the important American capital market in the future. High-ranking politicians from China recently even spoke of a new cold war. The conflict is currently completely ignored on the capital markets, as both nations cannot afford to send the trade conflict of the past few years into a second round. Trump wants to be re-elected in the fall, and China has less economic leeway than a few years ago. But since both nations are led by proud, self-confident presidents and politics are not always logical, we believe that developments should be closely monitored.
At least on the stock markets, it seems, the world is back in order. Prices have risen by over 25 percent since the low point in mid-March, and the American S&P 500 has even increased by 35 percent. This means that the US stock market is only a few percentage points away from making up for the entire loss in price since the beginning of the year. All the more the question arises, how it can go on now and what is already anticipated. In our eyes, the capital market is based on the ideal scenario – the restrictions will soon be lifted to a large extent – the economy, stimulated by the aid measures of the states and central banks, will move up to the pre-crisis level – the virus will be brought about by a vaccine that will soon be available , become controllable. As described in the last editions of this publication, we would like to accept this assumption, but we continue to see many risks. New waves of contagion, as is currently the case in South Korea, or second-round effects such as an increase in payment defaults for companies with low credit ratings have the potential to disrupt the ideal picture. In the past few days and weeks, companies in cyclical areas in particular have seen significant growth. Many of these stocks are so-called “value stocks” that appear cheap in relation to their fundamental value. Above all, automotive companies, financial and energy stocks are among them. In the long term there were and are more interesting investment segments, especially since many of these companies have structural problems. However, in a continued market recovery, stocks from these segments can represent interesting short-term admixtures. Just pay attention to the quality of the companies!