Interim conclusion 2021 – and investor questions on Corona, inflation & Co.

The global economy is recovering from the consequences of the Corona pandemic, many stock markets have performed well in the first half of 2021. But where do things go from here? Dr Jens Ehrhardt analyses central bank guidance, market sentiment and sector potential for the coming months - based on current questions from DJE social media followers.

Dr Ehrhardt, first a look back: when the covid pandemic broke out, you predicted a DAX level of 16,000 points for spring 2021. Did you simply have a good crystal ball?

No - and I am actually not a friend of fixed price targets. But in this case we had such an extraordinary monetary and fiscal situation that I felt we had to set an example. Because I have never before experienced that the economy is stimulated so strongly, especially from the monetary side. When a lot of money is suddenly printed, it has immediate effects, especially on the stock markets. That is why I bravely set this target, which was very optimistic at the time.

Now we have almost achieved this goal. Logical follow-up question: Where do we stand in the next few months?

I don't expect a bear market, even though the best time of the year is probably behind us. Many investors are already invested, the cash holdings of fund managers are only 3.9 percent according to the latest survey. So a short-term correction is possible. In the medium term, however, we are likely to see an upward trend, albeit flatter, with fiscal policy providing further tailwind. I hope that in Europe the focus remains on fiscal stimulus and that especially in Germany the "black zero" is not brought out again. After all, too much fiscal restraint has not proved successful in the past.

How great is the danger that we will see a stronger correction on the stock market?

That would be possible if the central banks start to brake sharply. But after the Fed's recent discussions, I think they have understood that a 180-degree turn in monetary policy can hurt the economy and the stock market - and will therefore be very cautious. Of course, investors are already heavily invested, optimism is high, not least on the options market, but in my opinion there is still no clear background for a real bear market.

Making money on the stock market no longer seems as easy as it did last year. Is this the time of active managers?

Even if it sounds like a pro domo argument: for some time now it has become apparent that active fund managers are performing better than index-based solutions, such as exchange-traded funds (ETFs). In May, for example, active managers outperformed the index by 70 percent. What is the reason for this? Last year we saw that initially a very small number of large tech stocks from the US pulled the index up. Active managers are usually only allowed to invest a limited part of the fund's assets in individual stocks. Therefore, they could not keep up. From November at the latest, however, the upswing was broad-based. This created numerous opportunities for active management, for example from a technical or valuation point of view, while passive investors were mainly invested in a few index heavyweights. I think stock pickers will be able to take advantage of their opportunities and extract some returns as the year progresses.

The majority of the Fed is currently assuming the first interest rate steps in 2023. Is that what will happen?

The market has recently reacted as if the 2023 rate hike is a done deal. However, if you listen closely, Fed Chairman Jerome Powell has always emphasised the flexibility of monetary policy. Jobs come first, he keeps saying - and inflation comes in the second sentence. The US government is more labour-friendly than it used to be, and officials will be wary of doing too much too fast. Whether the interest rate moves will come as expected is still up in the air as far as I'm concerned.

US government bond yields have been falling since April, while at the same time consumer and producer price increases have regularly exceeded expectations. How do you explain that?

If the bond market is trending friendly despite strongly rising inflation, this shows that investors there seem to be more sceptical about the economic outlook than many equity investors. But there are also special factors. For example, the US Treasury has engaged in quantitative easing of historic proportions, over hundreds of billions of US dollars - and this money needs to be invested. It's with the banks, and they're buying mostly bonds. As soon as the money is spent, the bond market could weaken again. All in all, the signals from the bond market are not enough for me to conclude that the US economy is weakening.

Do you think inflation will rise permanently?

In the short term, some negative surprises in inflation are still possible. But in the next one to two years, the situation could improve significantly. At the moment we have mainly goods inflation due to numerous bottlenecks. But the market economy is so flexible that when prices rise, production can also increase quickly and goods prices go down again. In the long run, one would probably have to observe service inflation. But here, too, there is a huge unused labour potential in the USA, for example, which could also keep service inflation in check.

What's next for gold as an asset class?

I am actually a big gold fan. After all, money printing is a global long-term trend, and gold should benefit from this - especially with low real interest rates. At the moment, however, I am rather cautious, because gold production figures are rising and more scrap gold is coming onto the market. In addition, unsettled investors have bought a lot of gold in the past year, especially in the form of ETFs, while traditional buyers, for example from India and China, have held back. ETF buyers might be more likely to sell again in view of rising share prices, which would depress the gold price. The chart technique also argues for a rather cautious stance on gold.

In which direction is the US dollar heading?

It is difficult to make a clear statement, because there are contradictory influences. In terms of purchasing power, the US dollar is overvalued, and the very high trade balance and government deficits in the US also argue for a weak US dollar. On the other hand,

there are currently many dollar pessimists in the market - the US dollar is heavily shorted, which should support it market-wise. Moreover, money usually flows to the country where the economy is doing best, and as the Americans continue to stimulate monetary and fiscal policy heavily, this will provide a tailwind for the US dollar. Overall, I expect that buoyancy may prevail in the short term, while the US dollar will weaken in the long term against stable currencies such as the yen.

Which region worldwide do you prefer?

Currently, Europe seems interesting. A lot has happened in Europe in terms of fiscal policy. Countries like Italy or France are spending more money, which makes sense in times of crisis and gives the region a tailwind. And since European stocks are often much cheaper than comparable US stocks, more money should flow into the region. I am also positive about the US, even if market exaggerations could lead to setbacks. Asia is the region I would least overweight. The Chinese money supply has been increasing relatively little for some time, and excess liquidity is practically zero. This means that no additional money is flowing into the stock market. This also has a strong impact on the surrounding countries, such as South Korea and Taiwan, and ultimately also on Japan, for which China is now the most important export market.

What about the sectors - value, technology or both?

There are still some good tech stocks today that not only show decent growth but are also reasonably valued. On the other hand, in the value sector we have stocks with reasonable valuations that are "underowned", i.e. that have not yet been massively invested in. You don't see total overheating in any area, value and tech can both be interesting - in the end you have to look at the individual stocks, i.e. do stock picking, to be successful.

What does the current market situation mean for your dividend strategy?

I think dividends tend to be underrated. Especially in times when fixed income yields almost no interest, dividend stocks are a very good alternative to corporate and government bonds. I also see the sector as better equipped against unexpected negative monetary or geopolitical events. Defensive dividend stocks can offer shareholders relatively secure growth with less volatility and therefore remain interesting as a deposit focus.


Note: All information published is for your information only and does not constitute investment advice or other recommendation. Long-term experience and awards do not guarantee investment success. Securities are subject to market-related price fluctuations which may not be compensated for by the active management of the asset manager or investment advisor. This information cannot replace a consultation. All information has been provided with care and to the best of our knowledge at the time of preparation. Despite all due care, the data may have changed in the meantime. Further information on opportunities and risks can be found on the website The sales prospectus and further information are available free of charge in German from DJE Investment S.A. or at The fund management company is DJE Investment S.A. DJE Kapital AG is the distribution agent.