Monday 17 March 2014 


Markets react enthusiastically to the outcome of the referendum in Crimea, taking the view that the peak of uncertainty is now behind us. This again illustrates that the change in a variable tends to be more important than its level. This applies to geopolitics, but also to economic factors: changes in growth and inflation are more important than their level (the attentive reader will have noticed that growth is already the change of the level of activity, so in this case we talk about the second derivative…).

In the evening, we have a client event at the Maxxi museum of modern art. A most fascinating building.

Tuesday 18 March 2014 


Spring is in the air: the sun is shining, the temperature is mild and the sky is blue and cloudless. For markets, though, it is more like ‘blue sky with some clouds’. Admittedly, concerns about the situation in Ukraine are abating, but as to economic data, the picture is mixed. The German ZEW index disappoints (though this is linked to Ukraine-related uncertainty when the survey was conducted) whereas the cooling of house price rises in China is a relief. In client meetings, we discuss how to invest in an environment of low rates and low risk premiums. I emphasise the merits of equities even for people who need a regular income from their investments. Dividend yields are high (also in comparison to corporate bond yields), as dividends to a certain degree follow inflation whereas corporate bond coupons and capital are nominal and hence eroded by inflation. Company-specific risk can be diversified away. The price to pay is exposure to equity market swings. However, this is less of an issue when one doesn’t expect to have to sell assets to finance spending.

The taxi ride to the airport was enjoyable and interesting. At one point I thought the driver had understood he needed to take us to Fiorano (the Ferrari race track) rather than Fiumicino. With our CIO of High Income Equities, I discuss further the topic of dividends. His European fund has an expected dividend yield of 4.9% and dividends are expected to grow quite a bit. The – too optimistic – consensus forecast anticipates earnings growth of 20% this year, so by keeping the payout constant, the fund still is attractive even if the forecast is scaled down. 

Wednesday 19 March 2014


Conference call with our team in Sao Paulo. They still think Brazil’s GDP will grow at below the consensus forecast of 1.7%. Moreover, inflation is bound to pick up because of the delayed impact of a weak currency. Nevertheless, and confirming earlier conversations, the bottom-up picture is less bleak. Politics, with elections in October, will play a big role and helps explain the recent rise in the market.

Thursday 20 March 2014 


Janet Yellen adopted a ‘stick and carrot’ strategy last night following the FOMC meeting by sounding a bit more hawkish (the Fed officials’ median forecast rate for end-2015 has risen to 1.00% from 0.75%) and by indicating that the first rate hike could come six months after the end of the tapering programme, so around spring next year. The carrot element is her view that the fed funds rate is expected to stay below the normal long run level of 4.00%, even when employment and inflation are near ‘mandate-consistent levels’ (which for inflation means 2.0%). On the back of this, the US dollar is a (little) bit stronger, but the prospect of three rate hikes next year is a reminder that 2015 will be challenging for investors.

Friday 21 March 2014 


My monthly interview with Kanaal Z, the Belgian financial TV channel, is devoted to the ‘Fragile Five’ and assesses to what extent progress has been made. India was the first country to see a stabilisation of its currency on the back of sound monetary policy and a reduction in the current account deficit. This was greeted by a stock market rally, also in anticipation of political change at the upcoming elections. Indonesia has also been doing well as of late. The trade balance has printed a series of monthly surpluses, the currency has recently strengthened and the stock market has been doing very well so far this year. Here again, hopes are that the election outcome will be market friendly. The equity market in Turkey has been moving sideways for a number of weeks despite the rise in political uncertainty (the local elections of 30 March will be a popularity test for the government). The aggressive monetary tightening at the start of the year has paid off in stabilising the currency and the current account deficit has shrunk. High levels of foreign currency corporate debt remain a source of concern. Brazil has seen a stabilisation of its currency, but growth is very slow and inflation is stubbornly high. Presidential elections are held in October, so this augurs for more market gyrations between now and then. The overall conclusion (South Africa was not discussed) is that some of the countries have become far less fragile whereas other still face challenges. Just like the BRIC countries, the Fragile Five have become a very heterogeneous group of countries.For the link to the interview (which is in Dutch) click here or


William De Vijlder

Vice – Chairman of BNP Paribas Investment Partners