Reinhard Panse's Perspectives
Reinhard Panse's Perspectives
Podcast
21.1.2021
It seems that nothing more can happen. Investors must come to this conclusion when they look at the current global situation. In recent months, the stock markets have made up for the losses following the coronavirus crash, in some cases significantly outperforming them, and even if there is a threat of another correction, the governments are there to help. The US central bank generally responds to share price falls of just ten percent with interest rate cuts, very similar to its counterparts in Europe and Asia. The states are pushing interest rates down to historically low levels.
In the European Union, this is first and foremost a positive political signal. After all, the determination of recent months shows that the members are willing and able to do everything they can to ensure that the economic recovery is not jeopardized. But they also accept this: They are driving debt ever higher.
This game will not last forever. Because even a doctor who gives a shaking alcoholic two double shots of whisky only combats the shaking, not the cause. With the low interest rate policy, however, the central banks are tempting the poor patients to "keep on drinking" - keep on drinking. In the long term, the central banks will have to buy up or cancel all this debt, as is already being publicly demanded in Italy. This should then lead to a significant rise in inflation expectations. But this scenario is still a long way off.
Interest rates are likely to remain this low for the time being in 2021, giving us a splendid year for equities. The return forecasts for equities are better than they have been for ten years, and there is great potential in Europe in particular, which is likely to exceed that of the US. While the ratio of cash flow to share price in Europe, even adjusted for coronavirus, is nine and therefore in the healthy range, it is likely to be 16 in the US - primarily due to the brisk demand for shares in tech companies such as Apple, Amazon and Tesla.
If the doctor puts down even half a whisky, i.e. the Fed raises US interest rates only slightly, the patient could get the shakes - a severe correction would be inevitable. Accordingly, the US equity market will be vulnerable to any uncertainties in 2021, while Europe will emerge from the crisis in a stronger position. Well then, cheers.
Reinhard Panse's Perspectives
21.1.2021
Reinhard Panse
Low interest rates will continue to drive the stock markets upwards. But beware: US equities are in for a tough time.
It seems that nothing more can happen. Investors must come to this conclusion when they look at the current global situation. In recent months, the stock markets have made up for the losses following the coronavirus crash, in some cases significantly outperforming them, and even if there is a threat of another correction, the governments are there to help. The US central bank generally responds to share price falls of just ten percent with interest rate cuts, very similar to its counterparts in Europe and Asia. The states are pushing interest rates down to historically low levels.
In the European Union, this is first and foremost a positive political signal. After all, the determination of recent months shows that the members are willing and able to do everything they can to ensure that the economic recovery is not jeopardized. But they also accept this: They are driving debt ever higher.
This game will not last forever. Because even a doctor who gives a shaking alcoholic two double shots of whisky only combats the shaking, not the cause. With the low interest rate policy, however, the central banks are tempting the poor patients to "keep on drinking" - keep on drinking. In the long term, the central banks will have to buy up or cancel all this debt, as is already being publicly demanded in Italy. This should then lead to a significant rise in inflation expectations. But this scenario is still a long way off.
Interest rates are likely to remain this low for the time being in 2021, giving us a splendid year for equities. The return forecasts for equities are better than they have been for ten years, and there is great potential in Europe in particular, which is likely to exceed that of the US. While the ratio of cash flow to share price in Europe, even adjusted for coronavirus, is nine and therefore in the healthy range, it is likely to be 16 in the US - primarily due to the brisk demand for shares in tech companies such as Apple, Amazon and Tesla.
If the doctor puts down even half a whisky, i.e. the Fed raises US interest rates only slightly, the patient could get the shakes - a severe correction would be inevitable. Accordingly, the US equity market will be vulnerable to any uncertainties in 2021, while Europe will emerge from the crisis in a stronger position. Well then, cheers.
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.
