„Europe will grow stronger than America“

Falling prices on the stock markets have investors worried, and some even see the end of the golden stock market years coming. Dr. Jens Ehrhardt, however, still firmly believes in shares and even sees new investment opportunities - an interview with Matthias Schneider from Münchner Merkur.

Dr Ehrhardt, the values of the American indices Nasdaq and S&P 500 have been on a downward trend since the beginning of the year, and the same applies to the German Dax. Chart analysts expect a longer-term trend. Do you share this view?

No, I don't believe in it. It's clear that prices will fall a little now because the US Federal Reserve will raise key interest rates and stop buying bonds at the same time. But I think that the maximum drop in the Dax will be a good ten percent and not 30 percent, as some analysts think. Because Fed Chairman Jerome Powell has learned his lesson: in the fourth quarter of 2018, he not only stopped the bond purchases, but even sold bonds in order to reduce liquidity. Prices fell by over 20 per cent back then and he had to make a 180-degree turnaround. That is why he will react more prudently this time. The fact that he is now simultaneously scaling back the purchase programmes and raising interest rates is due to the political pressure on Joe Biden, who is very unpopular because of the high inflation of seven percent - and this year there are mid-term elections in the USA. Moreover, money has now been pumped into the American markets for two years, and there is currently about two trillion dollars of excess capital in the banks there. That means the Fed could easily dump a year's worth of bonds until there is really too much liquidity flowing out of the system. So I think we are a long way from the crises of 2000 and 2007.

What does this mean for Europe?

The ECB says it wants to get to an inflation level of two per cent, but I think it can also live with three per cent. Basically, I don't expect an interest rate turnaround until mid-2023 at the earliest. The reason for this is the great influence of the Mediterranean states and France on the ECB. The French in particular have borrowed generously, which has caused the leading index, the CAC, to develop twice as strongly as the Dax. Therefore, they benefit from higher euro inflation, which devalues the debt. It must be said, however, that inflation is largely due to a supply shortage in the energy sector and should therefore come down on its own.

What does that mean for investors who want to sell their portfolio in two years?

I still think that shares are the best form of investment, far ahead of real estate and fixed-interest securities. But you have to see which stocks you have in your portfolio. US indices are determined by a maximum of ten large stocks - often American tech stocks. Now, if the end of the pandemic is indeed near, they would lose the internet push. They also pay almost no or little dividends, which could prompt investors and fund managers to switch to cheaper stocks. More interesting at the moment are papers of banks or utilities, some of which pay dividends of around four percent. But oil companies are also valued low at the moment. Some of them are currently even switching to renewable energies and are thus also exciting in the long term.

And what about long-term investors who want to save for 20 years or so?

America will be stronger than the rest of the world because of more capital and fewer restrictions. At the moment, however, I would not buy because of the very high valuation, but rather wait and see. American shares have a price-earnings ratio of around 22, in Germany it's more like 15. Asian shares are better, where you can expect a lot of growth. China is also very cheap right now, you just have to make sure that the real estate crisis with Evergrande doesn't get out of hand. Japanese stocks are safer: they have suffered for decades due to a weak economy and are therefore extremely undervalued at the moment, which also applies to the currency. But in Europe, too, we could for the first time see the indices rise more than in the US: due to the diminished influence of the Bundesbank, which has always put the brakes on, we have lower interest rates and more new debt in Europe than in America. That will drive the stock markets.

Is it worth buying cyclical stocks like carmakers now?

I would wait a little with car manufacturers at the moment, because you don't know how the central bank signals from America and the changeover to electric motors will work. Basically, I would start defensively with banks, oil stocks, utilities and telecommunications providers and later shift to consumer stocks.

Renewable energies are seen as a trend, but at the moment some of these stocks are lagging.

This is because people have bought them in good faith without looking at the very high valuations. This includes, for example, some Danish shares. Some of them have now fallen by half because of delivery problems and the general Corona concern. In the long term, however, one should not miss the issue because it is politically intended that it will prevail. Relatively cheap stocks in this area are battery manufacturers from Asia, e.g. South Korea.

Experts expect Omikron to be the end of the pandemic. Is it now time for bargain buying in tourism?

One has to see that the hope of higher profits is already priced in for some stocks. But if Corona is no longer a big issue in three months, the shares of airlines, hotels and airport operators will also rise strongly. However, one has to see that tourism stocks are traditionally highly leveraged and very volatile, which means that there is no telling when they will come up again. Not only the opportunities but also the risks are above average, so one should not buy too many.


The interview appeared in the Münchner Merkur on 25 January 2022.


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