Opinion

In the autumn of 1997, both in Europe and the United States, the ten-year interest rate fell towards 5 per cent. This was caused by the Asia crisis, which caused prices to fall worldwide. Falling interest rates and falling share prices were an unusual combination at the time.

Is private equity, like Amundi’s Chief Investment Officer Vincent Mortier recently said, a Ponzi scheme? Or is there another reason to fear this asset class?

Luxembourg’s private equity business has experienced a boom in recent years as the Grand Duchy’s improved regime for alternative investments helped it benefit from strong growth in global private markets. For professional investors - family offices and pension funds alike - private markets have become an important asset class.

Even before the European Central Bank has ended the current buying programme, ECB members are already working on a possible next programme. If you are still wondering whether the ECB’s policy might look different now that inflation is at record levels, you now have your answer.

Since 1926, the S&P 500 index has fallen by more than 20 percent fifteen times. On average, the index fell 34 percent in seventeen months during such a period. As many as eleven of the fifteen times the market paused somewhere between 15 and 20 percent price decline, just as it is doing now.

Then some of the earlier losses were made up for. On that basis alone, there is a good chance that the fall will continue.  

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.