Reinhard Panse's Perspectives
Reinhard Panse's Perspectives
Podcast
31.10.2024
The real estate market was at the heart of China's rise. Driven by a construction boom and supported by massive investments by private households, people built and bought for years - often on credit. Today, this engine is increasingly proving to be a risk factor. Billions of expensive properties are standing empty, prices are falling and many buyers are faced with enormous debts and losses in value. China is currently struggling with challenges on the real estate market, similar to what Japan experienced in the 1990s. Similar to Japan, China is highly indebted, with a ratio of corporate and household debt to national income of over 200%. In addition to growing debt and faltering economic growth, China has to come to terms with a shrinking working population. These economic tensions are also having a psychological impact: Chinese consumer sentiment is at an all-time low. In addition, foreign trade, a mainstay of the Chinese economy, is at risk of being weakened by new trade barriers.
The eurozone is also under economic pressure, particularly in industrial production. Capacity utilization is as low as it was during the financial crisis, and high energy prices are exacerbating the situation. At the same time, demand for European goods from China is falling. The "Leading Economic Indicator" (LEI), and thus the growth prospects for the economy, has already been showing a downward trend for two years - a sign that a rapid recovery is unlikely here too.
In the US, on the other hand, the possible re-election of Donald Trump is on the cards - a scenario that harbors uncertainty for the markets. Planned tariff increases on imports and the abolition of central bank independence would be accompanied by rising inflation and a decline in consumption, as the price of goods in the US would rise dramatically.
If Trump implements his economic policy ideas, geopolitical consequences are also to be expected, particularly if the US reduces its military support for Ukraine, which would have an impact on Europe. The gold market shows the reaction of investors: the price has risen by 34% - a signal of increasing risk perception.
In contrast, the US stock markets are optimistic. Confidence continues to prevail here, supported by the hope that artificial intelligence and possible interest rate cuts by the Federal Reserve could prevent a recession. However, these expectations could be deceptive. The AI divisions of large companies are currently barely profitable and consume immense amounts of energy. Moreover, historical experience shows that interest rate cuts have rarely averted a recession. Rather, they have often been harbingers of difficult economic times.
Reinhard Panse's Perspectives
31.10.2024
Reinhard Panse
Geopolitical risks and fluctuations in economic data from the major economic areas of the USA, China and Europe are influencing market sentiment and contributing to uncertainty about the prospects for global growth.
The real estate market was at the heart of China's rise. Driven by a construction boom and supported by massive investments by private households, people built and bought for years - often on credit. Today, this engine is increasingly proving to be a risk factor. Billions of expensive properties are standing empty, prices are falling and many buyers are faced with enormous debts and losses in value. China is currently struggling with challenges on the real estate market, similar to what Japan experienced in the 1990s. Similar to Japan, China is highly indebted, with a ratio of corporate and household debt to national income of over 200%. In addition to growing debt and faltering economic growth, China has to come to terms with a shrinking working population. These economic tensions are also having a psychological impact: Chinese consumer sentiment is at an all-time low. In addition, foreign trade, a mainstay of the Chinese economy, is at risk of being weakened by new trade barriers.
The eurozone is also under economic pressure, particularly in industrial production. Capacity utilization is as low as it was during the financial crisis, and high energy prices are exacerbating the situation. At the same time, demand for European goods from China is falling. The "Leading Economic Indicator" (LEI), and thus the growth prospects for the economy, has already been showing a downward trend for two years - a sign that a rapid recovery is unlikely here too.
In the US, on the other hand, the possible re-election of Donald Trump is on the cards - a scenario that harbors uncertainty for the markets. Planned tariff increases on imports and the abolition of central bank independence would be accompanied by rising inflation and a decline in consumption, as the price of goods in the US would rise dramatically.
If Trump implements his economic policy ideas, geopolitical consequences are also to be expected, particularly if the US reduces its military support for Ukraine, which would have an impact on Europe. The gold market shows the reaction of investors: the price has risen by 34% - a signal of increasing risk perception.
In contrast, the US stock markets are optimistic. Confidence continues to prevail here, supported by the hope that artificial intelligence and possible interest rate cuts by the Federal Reserve could prevent a recession. However, these expectations could be deceptive. The AI divisions of large companies are currently barely profitable and consume immense amounts of energy. Moreover, historical experience shows that interest rate cuts have rarely averted a recession. Rather, they have often been harbingers of difficult economic times.
About the author
Reinhard Panse
Reinhard Panse is Chief Investment Officer and co-founder of FINVIA Family Office GmbH. Until February 2020, Reinhard Panse was a member of the Management Board and Chief Investment Officer for HQ Trust GmbH, which is owned by the Harald Quandt family. From 2004 until joining HQ Trust GmbH in 2011, Reinhard Panse was Chief Investment Officer of the UBS Sauerborn business unit created within UBS Deutschland AG. From 2001, Reinhard Panse was a member of the Management Board of Sauerborn Trust AG and its legal predecessors. He was responsible for the investment strategy and played a leading role in the holistic asset management and administration of large private assets. Reinhard Panse began his career by taking over capital market and client support activities at Feri GmbH in 1989, after having founded and managed his own wealth management as managing director.
