On the international capital markets something is moving again. Not the political maneuvers in Brussels or the USA are changing but something at the base of the markets. The basic parameters get into motion.
Conspicuous is that inflation is suddenly rising, in fact more clearly than expected and that companies growth rates also indicate a stronger rise than usual. That means a trend back to again higher returns, a recovery in the prices of raw materials and the evidence that many companies have positioned themselves well in this changing environment. For the first time for a long time, the economic outlook will be better and not worse. Of course central banks still have a great influence on the economic situation, but it is clear that they are no longer dying for to create buying and investing incentives with low interest rates and yields. In the meantime, negative returns have created clear awareness. Awareness, that such actions do not solve anything.
What is now more and more anticipated is that regulatory pressure also faces this realization. It is evident that several, when implemented well-meant regulatory requirements, have not led to any improvement, but only have created obstacles and blockades. These are now to be adjusted. For instance the regulatory change in the energy sector or the growing doubt about further regulations in the banking sector show this gain of awareness.
Of course, for now only the hope remains that this development will continue and the pressure on so many industries and sectors will be reduced. Fiscal measures would be an additionally, and for years vehemently demanded impetus by the ECB, to boost economic activity. But politics is still not able to jump over this hurdle. Isolated “cosmetic” measures do not have the force yet that would be necessary. Not yet.
But capital markets are willing to anticipate this development. They just now realize that rising returns could lead to normalization in the direction of a more balanced risk / reward ratio on the bond side. To a more fundamental data oriented investment environment and therefore to a stronger interest in participating in these fundamental developments. The basic requirement for economic growth.
In this sense, 2017 should be a good year for stock markets.
Author:
Wolfgang Matejka, CEFA
Managing Director of Matejka & Partner Asset Management GmbH
2 November 2016
Note
Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.