Opinion

When it comes to equity valuations, most investors are concerned with the price/earnings ratio. And while that P/E ratio has fallen to just below the average of the past decade, the picture painted by another valuation measure is much less attractive.

Sustainable finance poses a compliance risk you can no longer afford to ignore, no matter whether you are green or brown. Offering green investment products without actually doing so can get you into serious trouble. Asoka Woehrmann, the chief executive officer at DWS, Deutsche Bank’s asset management arm, can tell you all about it. 

Nowadays, when the term stagflation is mentioned, everyone thinks back to the 1970s. Anyone who suggests a stagflation scenario as a real scenario for the future is immediately reminded of the many differences between then and now. The vast majority of people in the financial world started working after the 1970s. If they were born then, it is not a period they actively remember.

The decision is made. The ECB will also raise interest rates now that inflation is showing few signs of cooling. But this also increases the risk of a classic policy mistake.

Financial markets do relatively well when it comes to predicting the future. Collective wisdom is ultimately translated into share prices. Index investors benefit from this collective wisdom and are effectively free riders to the hard work of many. Yet in the stock market, it is not easy to distinguish between what is possible and what is real.

For years, US technology stocks have beaten the rest of the market. And not by much. This trend was reinforced by the Covid crisis, which pushed the valuation of growth stocks to unprecedented heights - even higher than during the ‘dot.com’ bubble. 

This sky-high valuation was sustainable as long as the earnings growth of these US growth stocks remained superior. But at least in the short term, this seems to be coming to an end. And that is not just because of the disappointing figures from Amazon.

After Russia, the eurozone is probably the big loser in the Ukrainian war. Not so much politically or strategically, but economically. The eurozone economy was already ailing before the Russian invasion. That is why the buffers are not big.

The Nasdaq is in a clear downtrend. It is still being held up by the ‘generals’, the big tech heavyweights such as Alphabet, Microsoft and the like, but it is important to watch out.

Mortgage rates and home prices are skyrocketing worldwide. That is not good news for housing affordability.

The graph below shows the relationship between the one-year change in US 30-year mortgage rates and the one-year change in the ‘Housing Affordability Index’. Roughly speaking, the change in mortgage rates explains about 40 percent of the change in the affordability of a home for sale in the United States. 

Luxembourg loves the new new thing, especially when it comes to financial legislation. The big question is: what should be next? The Grand Duchy may have found the answer already.

In the late 1980s, the Grand Duchy successfully tapped into global investment fund markets by becoming the first EU member state to offer Ucits-passports to international investment funds. Today, three decades later, more than a quarter of Europe’s fund assets has its home here. The country has even become a leading global funds hub.