Polis

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• Many investors see parallels between the current energy crisis and the oil crisis of the 1970s. However, there are fundamental differences that set the two crises apart - apart from the threatened energy supply.
• In the 1970s, demographics were relatively favourable and the world was not yet globalized. Accordingly, the growth potential for the economy was good.
• In the long term, the stock market situation could therefore have developed well, which is confirmed by a look back at the 1980s.
• In the short term, however, the market was less favorable than it is today, thanks to a high, positive real interest rate.
• The capital market had around 2% more interest than inflation. Towards the end of this inflationary phase, interest rates were 14% in America and 10% in Germany; inflation rates were 12% in America and 6% in Germany. The interest rate was therefore very attractive.
• Today, inflation rates in Germany are over 7% in Germany and over 8% in America; interest rates are 1% in Germany and 3% in America.
• This negative real interest rate is positive for equities in the medium term because investors have to get out of poor fixed-income securities.
• However, the Ukraine crisis not only raises energy issues, but also sets the course for a new global political framework. China in particular will have a major influence here.
• While dependence on Russian energy is solvable for the rest of the world, the situation would be different if China were to seal itself off as well.
• Many cheap and important products come from China and an import ban would lead to a sustainable growth problem.
• However, it is possible that the world will consist of a bloc of two in the future: the closer NATO states/the EU and the capitalist, pro-Western Asian states such as South Korea, Japan, Singapore and Australia on the one hand, and China, Russia and some emerging economies such as perhaps India and Iran on the other.
• If China continues to decouple and withdraw, this is likely to be a long-term development, so that the major "inflation effect" of the Chinese opening in 1978 will be reversed.
• Conclusion: No matter what happens with Russia, higher inflation rates will follow due to the changed global political order.

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Development

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• Demographics are being hit hardest by the current inflation.
• It is expected that the ageing population in all major industrialized countries - including China, Russia, Brazil, etc. - will lead to a shrinking workforce.
• The result: a structural increase in wages and a worsening of the already visible shortage of labor.
• This also means that more and more people have to be paid by the state in old age and consume - without producing anything. This also leads structurally to higher inflation rates.
• The second sustainable factor is China: the country's increasing isolation will drive up inflation rates in the future.
• Factor 3 is the fact that the current inflation cannot be properly combated. Extremely high national debt is forcing governments to keep interest rates as low as possible.
• Investors in Germany need not fear a recession for the time being. However, should the Chinese economy suffer further damage - for example due to its fierce anti-corona policy - this could hit the German export market hard. An EU-wide ban on imports of Russian gas would also have a drastic impact on Germany. The combination of both events could then actually drive Germany into a severe recession.

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Investments

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• Back then, bonds and government bonds were still able to perform in times of high inflation, as the interest rates at the time were able to absorb price losses. Currently, this is not the case with yields of one percent in Germany.
• Bonds remain a risky form of investment and are unlikely to be considered for investment over the next ten years - in their normal form - at best in small additions.
• Gold remains attractive because it cannot be multiplied. Like real estate, this form of investment has achieved its highest quarterly returns in times of high and rising inflation.

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Real estate:

• Residential real estate shares have fallen sharply since the start of the war. However, this development is not an indication of a collapsing real estate market.
• The slump can only be partly explained by inflation and rising interest rates. Another factor is the new EU directive, which obliges energy-inefficient properties to be renovated.
• The necessary renovations are likely to be very expensive and time-consuming due to a shortage of craftsmen and rising prices for building materials.
• Owners of large portfolios in particular - such as Vonovia - will be able to shoulder these additional costs much better than small landlords.
• If interest rates remain below the inflation rate in the future, residential real estate promises a clearly positive performance over the next 10 years. Yields will then rise more strongly with high inflation than with low inflation.

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Shares:

• The global equity market is still valued slightly higher than the historical average. European equity markets, like most emerging markets, are now valued at average or even below average, although interest rates in Europe are still well below average.
• High inflation is not necessarily a negative factor for companies: stock corporations have shown a high degree of flexibility in past crises. As companies also raise their prices when inflation is high, sales also rise with inflation in addition to costs. Costs are usually lower than turnover, which means that companies continue to make profits.
• Equities therefore perform quite well in an inflationary environment. Expectations for the next 10 years are in the upper single-digit range.
• According to our forecast, interest rates will not be able to rise above inflation, which means that bonds will not compete with equities in the future either.

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View of sectors:

• The IT sector has become interesting again, as IT companies are proving to be relatively inflation-proof.
• Despite price losses across the entire sector, earnings continued to rise.
• If one follows the forecast that interest rates will not rise too much from their current level, IT companies may be less susceptible to inflationary developments.
• One of the reasons for this is the comparatively high proportion of fixed costs that IT companies have, in contrast to companies with a large workforce, raw material consumption and the like.

• Healthcare companies have been growing faster than the stock market for several decades. This is true worldwide.
• On the one hand, the increasing number of older people, who cause very high healthcare costs in democratic countries and thus guarantee disproportionate growth for decades to come.
• On the other hand, demand for healthcare services remains high even in times of crisis due to the ageing population.

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Plateau

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Forecast for inflation and interest rates:

• Inflationary pressure will continue to rise, but our government debt ensures low interest rates.
• This energy crisis is not a mirror image of the oil crisis of the 1970s. Recommendation to investors: Keep calm and learn from the crises of the past. In the past 50 years, there have been a total of six crises emanating from the oil market, all of which have been overcome.
• Residential real estate, gold and equities are resilient.
• If inflation remains high, wages will also rise more sharply and rents can be increased accordingly.

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Geopolitical situation:

• The West has been united in its support for Ukraine.
• Sweden and Finland, two countries that have been neutral for decades, are now also seeking to join NATO. So if Putin sees the EU and NATO as the big enemy, then he has strengthened it through his war of aggression.
• China would be hit hard by sanctions such as those imposed on Russia. A conflict that would arise from the appropriation of Taiwan is therefore likely to have been put on ice for the time being.
• The current gloomy global political situation could become more moderate again in a few years' time if Russia chooses a successor to Putin who is open to the West again.
• The era of the populists is coming to an end for the time being.

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