Acting from the defensive

The second half of August was difficult for the stock markets. This was mainly due to the worsening of the energy crisis and the central banks' priority to fight inflation rather than growth and the labour market. We expect September to be another difficult month, especially for European equities and German government bonds.

The authors

DJE's team of analysts monitors and evaluates the markets on an ongoing basis using the in-house FMM method according to fundamental, monetary and market criteria. They summarise their findings once a month.

From the analyst team of DJE Kapital AG

Historically, September - especially in the second half - is a difficult month. We will therefore continue to position ourselves defensively and not increase investment ratios overall. We continue to consider the US market more attractive than Germany and Europe, because in our view it offers the better risk-reward ratio. The energy price problem will continue to burden Germany and Europe, and the political responses to this so far seem insufficient to us. German companies are hardly relieved and have no planning security. In addition to the USA, we are also somewhat more optimistic about Asia, not least when one considers the development of the money supply. Asian regions such as Singapore could offer opportunities. On the bond side, we continue to believe that caution is warranted for German and European government bonds.

 

Equities/Bonds

    • Maintain current investment ratios
    • Focus on companies with high pricing power
    • German and European government bonds remain unattractive
    • Selected corporate bonds continue to offer good opportunities

We have currently reduced the equity portion of our fund portfolios. On the equity side, we still consider a focus on high-quality companies with high pricing power to be sensible, as these can generate solid profits even in a weak growth environment and thus probably offer the best investment alternative in the long term.

In fixed-income securities, we continue to regard German government bonds in particular as unattractive. The reason is the worsening energy crisis, the resulting competitive disadvantage for German companies and the persistently high inflation. We therefore consider yields on German Bunds to be significantly too low. In contrast, selected corporate bonds continue to offer opportunities in our view. Particularly attractive are issues that currently yield more than 5% with maturities of 5 to 6 years.

 

Economy / Regions

    • USA and Asian regions like Singapore attractive
    • Germany and Europe favourably valued, but at risk
    • China remains difficult

We consider the US market more attractive than Germany and Europe because, in our view, it offers the better risk-reward ratio. The energy price issue will continue to weigh on Germany and Europe, especially since we do not consider the answers from policymakers to be sufficient so far.

China remains very difficult. First and foremost, we consider the trend towards increased nationalisation - especially among private property developers - to be a cause for concern. This is aggravated by the geopolitical risks due to the escalation of the conflict over Taiwan. On the other hand, money supply growth and excess liquidity are improving in China. Money supply growth is generally somewhat better again in Asia; besides China, Japan also continues to have positive excess liquidity. Within Asia, we consider countries such as Singapore to be attractive: the Singapore stock market is favourably valued and has also shown relative strength since the beginning of 2022. Singapore is interesting for both the USA and China as a trading hub.

The German and European stock markets are favourably valued in our view, but the further rise in energy prices poses major economic and location risks. On a sector level, we still consider the energy sector to be promising: the industry is still favourably valued and convinces with high free cash flows. As the supply of energy cannot be increased from one moment to the next, energy prices are likely to remain high in the longer term.

 

Currencies / Basic Resources / Gold

        • Euro still under pressure
        • Norwegian krone or Swiss franc attractive

The euro is likely to remain burdened by developments in Europe (especially in Germany) and the energy price problem. Within Europe, on the other hand, we see greater potential in currencies such as the Swiss franc or the Norwegian krone.

 

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