Editorial - April 2021

Edito

Stalling

   In our Economic and Financial Outlook reports in 2019 we discussed the observed existence of a tripolar world in which Europe was not a stakeholder. The shifting of the centre of the world towards the Pacific, where China and US are completely dominant, has confirmed our analysis. Only Russia still seems able to mount a challenge, whereas in Europe the current rebound following the historic collapse in production and trade in 2020 is showing further signs of stalling.

   The European stock markets have nothing to be ashamed of, however, in terms of their performance since the start of year, as the sentiment has spread that the European Central Bank will be able to find effective solutions in any situation. That being said, there are many causes for concern and their handling would require the unfailing solidarity of the European institutions. This seems like a remote prospect though, as new divisions emerge over the most minor contentious issues. This doesn't seem to worry the market, however, as the capitalisations of European companies grew by 6% between January 2020 and March 2021, even though profits fell by nearly 50%. This trajectory should give us pause at a time when debt and leverage are everywhere and there are many signals, such as Greensill and Archegos, suggesting a need for a rethink.

   Paradoxically, old Europe's indices are therefore imitating their counterparts in the US and Asia, but the European economy is stalling while the US and Chinese economies are buoyant. So are two different macroeconomic growth rates producing the same stock market result? History has shown that ultimately there is always a convergence, to correct any valuation anomalies once the flow, trend and rotation effects have run their course.

Written by
Francis Jaisson

Francis Jaisson
Managing director, Head of Asset Management, Marketing, Trading and Research

April 28, 2021

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