Monday 10 March 2014

London

The German DAX index is underperforming the rest of Europe, which triggers a discussion on European versus US equities. The former are more attractive from a fundamental perspective (earnings growth, valuation, possibility of ECB easing), but are obviously more exposed to geopolitical risk due to tensions surrounding Ukraine and Crimea.

Tuesday 11 March 2014 

Milan 

We have a big client event in Milan for the relaunch of Parvest, our flagship fund range. My presentation describes a new era of investing around six different themes: 

  1. Developed economies are doing better
  2. Emerging economies are addressing structural issues
  3. Monetary policy divergence is on the rise
  4. From liquidity-driven to earnings-driven markets
  5. Valuation opportunities are less and less numerous
  6. Use active management to boost returns

Wednesday 12 March 2014

Milan

On the flight back to Brussels, I read two interesting documents. One is a research paper from the ECB (http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1625.pdf) on the pricing of sovereign risk and how it is regime-dependent, whereby risk was first ‘under-priced’ (so spreads were too narrow compared with fundamentals before the crisis hit) and then became ‘overpriced’. The other is from the latest BIS (http://www.bis.org/publ/qtrpdf/r_qt1403.pdf) quarterly review. It warns that forward guidance may induce more risk-taking, thereby making the transition to a ‘normal’ level of official interest rates more difficult. This fits with the comments I made in a video some time ago (Met me be your guide: is forward guidance making investing easy? http://playertv-bnpparibas-ip.pad-playertv.brainsonic.com/web//player-preview-b50e9528b12c02d2a7f0412b807a167c-512-288.html): data-contingent forward guidance is an open invitation to hit the throttle (speaking in car terms). The brakes will be slammed afterwards. 

Thursday 13 March 2014 

Brussels 

Mario Draghi, speaking in Vienna, has adapted his comments in view of the market reaction to last week’s ECB decision to keep its current policy unchanged. There is an explicit reference to the strong euro (“The euro is increasingly relevant in assessing price stability”) and, importantly, to the fact that the ECB is ready to act (so the implementation issues of non-conventional tools have already been analysed). 

In Sint-Niklaas, a town halfway between Brussels and Antwerp, I present the market outlook to a group of insurance brokers. I arrive early which allows me to join the Q&A session of the previous speakers on the difficulty of paying for pensions in a ‘pay-as-you-go’ system. I make a plea that investors are made more aware of the need to adopt a very long horizon when they’re young so as to benefit from higher returns in the long run from riskier investments such as equities and corporate bonds. 

Friday 14 March 2014 

Brussels 

I hold a presentation for colleagues from BNP Paribas Fortis on sustainable and responsible investing (SRI) in the conference centre of RSC Anderlecht, one of Belgium’s top football teams. This offers views of the stadium, but the focus was on the economic effects of SRI. In preparing this, I reviewed the academic literature on CSR, which is incredibly rich and which generated interesting finds. CSR- (or SRI-) conscious companies have had better financial performance (e.g. return on equity or return on assets) and higher labour productivity. At the macroeconomic level, countries with high CSR standards, as applied by companies and in regulation, have achieved faster GDP and productivity growth.

 

William De Vijlder

Vice – Chairman of BNP Paribas Investment Partners