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ColumnDare more Europe

A billion-dollar fund is designed to heal Europe's economy and better prepare it for future shocks such as the Corona crisis.
A billion-dollar fund is designed to heal Europe’s economy and better prepare it for future shocks such as the Corona crisis.imago images / Christian Ohde

It was the crucial week for Europe. And at the beginning of the week, it still seemed as if investors had an appetite for more: more shares and more risk – and more Europe. In any case, they made strong gains on the stock exchanges and drove prices up. Brussels made it possible on Tuesday. Because previously the mood was subdued, but after the long-awaited agreement of the European heads of state on new aid funds – and for the first time also on a common borrowing in favor of the countries particularly hard-hit by Corona – many European indices made a happy move: The leading German index Dax was up it again crossed the 13,300-point mark on Tuesday. The Eurostoxx even shot up to 3450 points after starting the week at a leisurely pace. After all, he won 3.3 percent in one day. But then somehow the feeling of fullness came.

In any case, the indices then fell again by Friday, as if air had escaped from them. There were no dramatic drops, but there was a noticeable pause. What happened? Above all, the new figures from America put a stop to investors’ great cravings. It is now clear that the United States is far from having a grip on the corona crisis, this time even the President conceded. He spoke of a worrying increase in new cases. And that, again, can be seen as quite dramatic. After all, he had shown himself to be worryingly resistant when it came to realistically assessing the risk of the corona crisis. If even he now worries publicly, it must actually be bad.

In any case, much earlier, three weeks ago central bank chief Jerome Powell had warned that the future for America’s economy was “very uncertain” and last week he had topped up again with pessimism. In addition, the latest unemployment figures from America are also alarming, and are rising rapidly again. The number of cases of new cases does the same, it is now over four million in the United States. And if the party of the US president even cancels its conference and even Donald Trump propagates the wearing of masks, the situation is serious. Very seriously. That was also the main reason why the stock markets slumped from Thursday to Friday.

Opportunity for Europe

Nevertheless, this does not have to mean the worst for Europe’s investors, on the contrary, even institutional investors say that it is even a good opportunity for Europe. If the US economy is weakening more clearly than the optimists previously thought, it means for the local stocks that they could pull away from the American competition for the foreseeable future. And some investors have been waiting for this for a long time.

At least some international fund managers have recently opted for exactly this development: In May, roughly every sixth fund manager said he was underweight European stocks, according to a Bank of America survey. So that was the beginning of the great recovery. Meanwhile, the exact same number of them say that they have now overweighted European stocks in their portfolios. So you’ve already dared more Europe. And several analysts think that private investors could actually do that as well. Because the big rally in US stocks contributed to the big upswing, especially last year. But now there is some evidence that America will take longer to recover from Corona. In addition, the presidential election is due in November, which brings with it a lot of uncertainty.

Classically, it is said that election years are good stock exchange years in America, but it is not quite that easy this year. Because somehow nothing is going on this year. Incumbent Trump is under pressure from his corona coping strategy, which, to be honest, basically doesn’t exist. Rather, it was more that he had somehow slaved his way through – but now has to recognize that it doesn’t really work. However, the prospect of a possible change of president delights many of his opponents. But not exactly the camp of those who had speculated on Trump’s continuation of the tax reduction policy for companies. This may mean that one of the main drivers for share prices is no longer available. All of this currently unsettles shareholders rather than encouraging them.

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