Asset Allocation

A quarter of the 600 largest listed companies in Europe have already suspended or cancelled dividend payments for this year, according to a study by Germany’s DZ Bank. As a consequence, total dividend payouts are to fall by some €310 billion.

The bank’s analysts write that ‘an unprecedented cancellation of dividend payments is rolling over European stock markets’. They estimate 2019 payouts to fall by 23%, or €310 billion. 

The earnings season has started in Europe. But it’s a rather strange one. ‘All companies have stopped issuing guidance,’ observes Gilles Guibout, head of European shares at AXA IM. ‘That makes it difficult for bottom-up investors. So more than ever, we need a top-down approach now.’

The first US earnings results came in published last week. As always, the major banks were first, showing disappointing results and withdrawing guidance for the second quarter. The consequence: analysts look into a black hole of uncertainty. 

The real impact of the corona crisis on private equity valuations has yet to become visible, but it’s already time to look for new direct and co-investments. ‘Past experience has shown that post-crisis years are often good vintage years for new private equity investments,’ says Nils Rode (pictured), CIO of Schroder Adveq, in an interview with Investment Officer.

The Federal Reserve is by far the largest single owner of US government bonds. If the Fed continues its buy-back policy at its current pace, all US government debt will be in the hands of the central bank in less than two years’ time. That’s a good reason to sell Treasuries, says BlackRock.

A study of bear markets shows that in 70 percent of the cases stock markets fell back to a new low. In 30 percent there was a continuing recovery after a severe crash. We are probably experiencing the latter scenario now, according to BNP Paribas Fortis’ chief strategist Philippe Gijsels.

Gijsels says that the bank has been busy buying attractively priced shares and high yield bonds for clients for some time now. 

Market volatility will increase as a result of a decline in share buybacks and lower earnings growth per share, warns Goldman Sachs.

David Kostin, who leads the business bank’s portfolio strategy team, writes in a note to the bank’s clients that the 51 listed companies in the S&P that have suspended their share buyback programmes account for no less than 27% of total S&P 500 share buybacks in 2019.

ETFs have remained open for business during the coronacrisis, while credit markets were largely frozen. But ETFs were still able to cope with unprecedented outflows, providing investors with badly needed liquidity. However, this may just be a Pyrrhus victory for the index providers.

The coronacrisis has hit the real estate sector hard. Much of the damage could prove to be permanent, as underlying trends are now accelerating and consumer behaviour could change permanently, says Michael Gobitschek, manager of the Skagen M2 fund.

‘Will we still travel as much as before the virus outbreak In two years’ time, for example? And we may be working from home a lot more’, Gobitschek asks.

Fund managers expect more companies to cut their dividends, following the example set by banks. However, many companies still are perfectly capable of maintaining their dividends, according to DPAM’s Laurent van Tuyckom.