Reinhard Panse's Perspectives
Reinhard Panse's Perspectives
Podcast
28.6.2024
A look at the economic uncertainty index looks bleak: Even during the 2008 financial crisis or the 2020 coronavirus crisis, German investors were not as pessimistic as they are now. At the same time, investors in other industrialized countries such as the USA, Japan and the UK are significantly less anxious. So is the situation in Germany really that bad? And is it perhaps even overestimated elsewhere?
The Corruption Index provides an initial indication. Here, Germany and other large industrialized countries are clearly ahead - in contrast to Russia, China and Hungary, which have been struggling with growing corruption and a correspondingly lower standard of living for 30 years.
Another good leading indicator is the TCB-LEI from the US research firm The Conference Board, which was founded in 1916. This showed a great correlation with the US stock market from 1969 to 2018: with the exception of the 1959 recession, it correctly predicted each of the 8 recessions from 1971 to 2020 by falling at least 4% before they began. However, although it has already fallen by 14.1% from 2021 to May 2024, the US economy has been unusually resilient.
The reason for this is America's massive national debt, which (measured as a percentage of national income) has been on average 5.4 percentage points higher than in the eurozone over the last five years. As this level of borrowing cannot be sustained in the long term, the country faces a considerable risk of recession - although this may not yet have materialized.
If the lenders come from abroad, the exchange rate of the dollar also rises due to purchasing power, as a large proportion of the amounts are spent domestically. At the same time, exciting stories such as the rearmament of the 1980s, the development of the internet in the early 2000s and the current expansion of artificial intelligence are attracting new investors. So while the economy looks prosperous on the outside, the threat of recession and an overvalued dollar are bubbling on the inside. In contrast, the euro, yen and pound sterling are significantly undervalued.
In terms of real estate, we are experiencing significant overvaluation in the UK, as purchase prices here have risen sharply in relation to per capita income. The situation is similar in the USA, if we believe the feasibility index to be a better benchmark. By contrast, the German and Japanese markets are fairly valued.
The American optimism with regard to shares is interesting. Even during the internet bubble at the beginning of the 2000s, this was not as great as it is today and is accompanied by a valuation that is almost as high as it was then. Earnings expectations for the next 10 years are correspondingly low, while other countries offer much more attractive prospects for investors.
Reinhard Panse's Perspectives
28.6.2024
Reinhard Panse
German investors are pessimistic - but is their displeasure justified? What do the forecasts for currencies, shares, real estate and the risk of recession really look like?
A look at the economic uncertainty index looks bleak: Even during the 2008 financial crisis or the 2020 coronavirus crisis, German investors were not as pessimistic as they are now. At the same time, investors in other industrialized countries such as the USA, Japan and the UK are significantly less anxious. So is the situation in Germany really that bad? And is it perhaps even overestimated elsewhere?
The Corruption Index provides an initial indication. Here, Germany and other large industrialized countries are clearly ahead - in contrast to Russia, China and Hungary, which have been struggling with growing corruption and a correspondingly lower standard of living for 30 years.
Another good leading indicator is the TCB-LEI from the US research firm The Conference Board, which was founded in 1916. This showed a great correlation with the US stock market from 1969 to 2018: with the exception of the 1959 recession, it correctly predicted each of the 8 recessions from 1971 to 2020 by falling at least 4% before they began. However, although it has already fallen by 14.1% from 2021 to May 2024, the US economy has been unusually resilient.
The reason for this is America's massive national debt, which (measured as a percentage of national income) has been on average 5.4 percentage points higher than in the eurozone over the last five years. As this level of borrowing cannot be sustained in the long term, the country faces a considerable risk of recession - although this may not yet have materialized.
If the lenders come from abroad, the exchange rate of the dollar also rises due to purchasing power, as a large proportion of the amounts are spent domestically. At the same time, exciting stories such as the rearmament of the 1980s, the development of the internet in the early 2000s and the current expansion of artificial intelligence are attracting new investors. So while the economy looks prosperous on the outside, the threat of recession and an overvalued dollar are bubbling on the inside. In contrast, the euro, yen and pound sterling are significantly undervalued.
In terms of real estate, we are experiencing significant overvaluation in the UK, as purchase prices here have risen sharply in relation to per capita income. The situation is similar in the USA, if we believe the feasibility index to be a better benchmark. By contrast, the German and Japanese markets are fairly valued.
The American optimism with regard to shares is interesting. Even during the internet bubble at the beginning of the 2000s, this was not as great as it is today and is accompanied by a valuation that is almost as high as it was then. Earnings expectations for the next 10 years are correspondingly low, while other countries offer much more attractive prospects for investors.
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.
