Monday 12 May 2014 

Abu Dhabi 

I land in Abu Dhabi around 7AM. It’s already comfortably warm. Later in the day it becomes uncomfortably hot (36 degrees Celsius). I have several meetings with investors to discuss the economic and market outlook. I have dinner with a former colleague who now works in the region. There are huge investment projects for the coming years in the country (e.g. infrastructure, power generation), which creates interesting project finance opportunities. More local capital expenditure would also mean lower current account surpluses (the current account surplus is equal to the difference between private sector savings and investments and the public sector surplus or borrowing requirement). This would mean that the current excess liquidity would be less of a challenge in future. For the time being, this liquidity is finding its way into the equity market, property and leveraged fixed-income strategies. 

Tuesday 13 May 2014 

Abu Dhabi/Dubai 

More investor meetings in the morning. The discussions focus in particular on emerging equity markets, with questions such as ‘when is a good time to get in?’ Cognisant of the attractive valuations, we’re waiting for early signs of better economic momentum. Exports are particularly important in that respect. ECB policy is also debated: they will act in June but after all the talk about the ECB being seriously concerned about the strong euro, the market may become seriously concerned that the ECB is not doing enough. In the afternoon I speak at a conference in Dubai about opportunities in fixed-income investing. The conference has attracted a huge crowd (more than 800 people, I’m told by the organiser) and is devoted to bond issuance in the Gulf region. I speak about the global macroeconomic influences and in particular the challenges for the US Federal Reserve of hiking interest rates without causing bonds and equities to tank. The risk seems remote, although the market reaction to the tapering discussion almost exactly a year ago is a reminder of how even carefully-worded statements can be disruptive. This is an issue for next year and in the meantime, bond markets continue to have a great time. Government-bond yields continue their amazing decline, suggesting that investors do not see any inflation at all on the horizon. The conference is set in a hotel resort, beautifully designed with landscaped gardens, although the heat keeps one inside. Before leaving for the airport the taxi driver shows me The Palm (impressive) and the Burj Khalifa, the tallest building in the world (very impressive).

Wednesday 14 May  

Kuwait 

Investor meetings with discussions on what to expect from the ECB in June. Our money-market team expects a cut in the refi rate and the marginal lending rate but no change in the deposit rate. It is not clear whether this would succeed in pushing the euro down. We also exchange views on why the cyclical peak in 10-year US Treasuries will be below 5%, a key reason being that nominal GDP growth will be lower than in previous cycles. Another reason is that the more the equity market continues to rise, the more investors will be tempted to lock in their gains and buy some bonds. In the afternoon I work on upcoming presentations in my hotel room when CNBC announces breaking news. Jens Weidmann of the Bundesbank has stated that not all the instruments that are under discussion are suitable, that an exchange-rate target is not consistent with an independent monetary policy and that the ECB would have acted last week if it had seen the need. Reading between the lines, this means that the use of a genuinely non-conventional policy (i.e. QE) becomes less likely and that the new ECB staff forecasts become crucially important in deciding whether or not to trigger action in June. Moreover, it may strengthen the view that the low-inflation environment is not about to end any time soon. This is at least what the bond market seems to be thinking, with Bund yields having fallen below 1.4%. 

Coming back from Kuwait is an ‘interesting’ experience as my flight to Frankfurt is not due to leave until 1:35AM. The upside though is that it gives me plenty of time to read in the evening. 

Thursday 15 May 2014

Brussels 

Land at Frankfurt and while waiting for my connecting flight to Brussels, I read the Handelsblatt. It refers to the umpteenth interview with or speech by an ECB official, this time Peter Praet, on the broad range of instruments at its disposal, the willingness to act, etc. Creating a surprise will be difficult on 5 June, the date of the next ECB meeting. 

Friday 16 May 2014 

Brussels 

On my way to a live-chat with the readers of L’Echo, a Belgian financial newspaper, I listen to the radio in my car. In the run-up to the European elections, a journalist is visiting different countries. She reports on a Greek dentist who is a graffiti artist by night. To make ends meet he sells paintings using the graffiti templates in an art gallery. The road towards complete healing from the eurozone crisis remains a long one. 

 

William De Vijlder

Vice – Chairman of BNP Paribas Investment Partners