Contact
If you have any questions, or would like to meet us or become a client, please contact our banking advisers who will be happy to respond according to your individual requirements.
Contact
If you have any questions, or would like to meet us or become a client, please contact our banking advisers who will be happy to respond according to your individual requirements.
My account online
Select an authentication mode
Volatility, which was exceptionally low throughout 2017, marked its return to the financial markets in February. During the latest market correction, defensive stocks have nevertheless not been particularly resistant. This is the view of Guy Wagner, Chief Investment Officer at BLI - Banque de Luxembourg Investments, and his team, in their monthly analysis, ‘Highlights’.
Volatility, which was exceptionally low throughout 2017, marked its return to the financial markets in February. From its peak on 26 January to a low on 8 February, America's S&P 500 flagship index retreated by 10%. The S&P 500 in the United States, the Stoxx 600 in Europe, the Topix in Japan and the MSCI Emerging Markets (in USD) grew respectively over the month. “The fall in equities was triggered by a higher-than-expected wage rise in the United States, leading to fears of an increase in inflation and hence interest rates”, says Guy Wagner, Chief Investment Officer and managing director of the asset management company BLI - Banque de Luxembourg Investments. In terms of sectors, a number of stocks traditionally considered defensive (e.g. food sector companies) were unable to withstand the downward trend: given that in recent years many investors had come to consider them as alternatives to fixed-income investments in a low interest rate environment, they came under pressure when yields started to climb. “However, since, unlike bond coupons, the dividends from good quality companies increase over time, we consider the underperformance of defensive stocks to be only temporary. Despite having posted the strongest performance in 2017, the technology sector corrected the least and has been the most buoyant sector since the start of the year.”
Global economy is continuing the dynamic growth
The global economy is continuing to enjoy the dynamic growth spurt that began in 2017. In the United States, GDP growth is expected to accelerate during the year due to the fiscal stimulus generated by the Trump administration's tax reform and the budget deal reached between Republicans and Democrats at the beginning of February. “In the eurozone, the countries lagging in terms of economic growth, like France and Italy, are also starting to post stronger signs of an upturn.” In Japan, the economy is continuing to grow at around 1.5% despite the ongoing demographic decline. “In China, President Xi Jinping’s reaffirmed intention of encouraging more qualitative than quantitative growth could dampen the pace of economic growth in the first half of this year”, thinks the Luxembourgish economist.
Growth of bond yields in the US – in the eurozone, yields remain low
In the United States, the prospects of economic growth continued to drive bond yields higher in February. The yield on the 10-year Treasury note edged up, nearing the psychological 3% threshold. In the eurozone, bond yields stabilised after their rise in January, with the 10-year government bond yield decreasing in Germany and in Italy, and going up slightly in Spain. “Generally speaking, the bond markets still hold little appeal. In the eurozone, the yields on offer continue to be very low, while the higher yields offered on US Treasuries are eroded for European investors by the costs of hedging the dollar-to-euro exchange risk.”
Dollar rebounds on prospects of economic growth
In February, the dollar increased slightly against the euro, with the euro/dollar exchange rate dropping from 1.24 to 1.22. The dollar rebounded on prospects of the economy accelerating following the fiscal stimulus in the United States, “increasing the likelihood of the Federal Reserve tightening its monetary policy more quickly than expected this year. Nevertheless, in view of the increase in the US budget and trade deficits, it is unlikely that the dollar will see a sustained rally”, concludes Guy Wagner.
