Outlook and strategies for the quarter ahead
World
- The world economy will adjust to becoming a service oriented society relatively quickly. It’s likely this shift will occur more smoothly in some regions than others. For instance, developed economies with strong purchasing power will have an advantage over the other
- We cannot exclude that equity multiples will be questioned by the market at some point in the future. This, coupled with the announced monetary transition, could lead to some important price adjustments. This will be particularly true for markets in which performance was based on pure accounting gymnastics.
Playbook of the global return-to-mean
We believe there is an important change in the global growth story taking place. The transition process is already in an advanced stage, with China itself apparently recognizing the changing dynamic and the impact it’s already having on its economy, monetary, and societal systems.
The table below can be read in two ways: each column from the top to the bottom and each column from left to right
| Phase 1 | Phase 2 | Phase 3 | |
| Production sites | West | East | West |
| Currency preferences | $ oriented | Periphery | $ oriented |
| State of economy | Boom | Over-supply | Deflationarybust |
Based on this table, the world economy is presently situated between phase 2 and 3.
Europe
The European economic recovery has hardly begun, but legacy issues remain:
a) While the political and economic interest in continuing to work on the recovery remains, the disenchantment with the ineffectual EU regime (which is quite strongly influenced by Germany) is splitting the continent in two.
b) Strong fragmentation can be seen within Europe: Germany won’t recognize the negative impact to its economy by the weakest EU-members, France is stuck in a multi-decade long depression, and the UK is more politically divided than ever.
USA
We are neutral on US stocks.
a) In our view, the US expansion will flatten out based on limited consumer fundamentals. The previously healthy earnings growth slowed in 2015 due to weak energy sector profits.
b) As the US market enters a new interest rate cycle, unforeseen events can be expected.