Last updated: 09:08 / Friday, 26 February 2016
Guy Wagner, "Highlights", BLI

Increasing Signs of Economic Slowdown throughout the World

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Increasing Signs of Economic Slowdown throughout the World
  • The ongoing weakness of oil prices and increasing signs of economic slowdown heightened investors’ aversion to risk
  • Guy Wagner: "Given current zero interest rates, the difficulty the central banks would have in responding to a major economic downturn makes equity markets vulnerable"
  • While the economic and financial environment remains weak, it is particularly important not to make concessions on company quality

Signs of economic slowdown are increasing worldwide. This is the view of Guy Wagner, Chief Investment Officer at Banque de Luxembourg, and his team, published in their monthly analysis, ‘Highlights’.

Apart from weakness in the manufacturing sector, services activities are also starting to be affected, despite the favorable effects of falling oil prices on consumer purchasing power. "According to official advance estimates, US GDP slowed to 0.7% in the fourth quarter of 2015, due to a dearth of corporate investments and a slowdown in consumer spending. Most economic indicators also tended to deteriorate in other regions," Guy Wagner adds.

January was a particularly difficult month for equity markets

January was a particularly difficult month for equity markets. The ongoing weakness of oil prices and increasing signs of economic slowdown heightened investors’ aversion to risk. The S&P 500 in the United States, the Stoxx 600 in Europe, the Topix in Japan and the MSCI Emerging Markets (in USD) all lost ground. "The financial sector was particularly shaky due to prospects of deterioration in companies’ capacities to service their debt following the slump in commodity prices and the economic slowdown," says Guy Wagner. "Given current zero interest rates, the difficulty the central banks would have in responding to a major economic downturn makes equity markets vulnerable."

Key interest rates unchanged in the United States and Europe

Having raised the fed funds interest rate by 25 basis points in December, the US Federal Reserve left interest rates unchanged at its January meeting. According to Guy Wagner, "Higher volatility on the financial markets and increasing signs of economic slowdown worldwide have reduced the probability of further monetary tightening in the coming months." In Europe, ECB president Mario Draghi hinted at the introduction of further monetary stimulus at the Bank’s next meeting in March to combat low inflation.

No concessions on company quality

"In Europe, economic statistics continue to surpass low expectations, but in absolute terms the pace of growth is flagging.” Active management within asset classes, especially equities, is therefore all the more vital. "While the economic and financial environment remains weak, it is particularly important not to make concessions in terms of the quality of the companies in which you invest," concludes Guy Wagner.

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