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DZ RESEARCH BLOG

The DZ Research Blog offers a broad and in-depth analysis spectrum. Experts from
DZ BANK Research
make contributions and share their views. DZ BANK Research is one of the largest
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Germany and other German-speaking countries with 85 analysts and economists. In
the DZ Research Blog they analyse current data on economic trends, evaluate the
latest developments on the capital markets and comment on the impact of
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NEWS

Sep
14
2021
 * Stock Markets
 * USA

0


DEBATE SURROUNDING THE MSCI WORLD INDEX: IS IT STILL AN IDEAL INVESTMENT?

Many investors are putting their money into global index funds in the firm
belief that it is a way of achieving broad diversification. However, this is a
fallacy in the case of the MSCI World Index since it is dominated by just of
handful of US stocks. The idea of diversification in the index has been lost −
if it ever existed at all. However, the index is not a bad investment since its
heavyweights have stellar earnings power.   Decades ago, financial experts
developed an entirely new concept for investing in shares: the idea was that
investors should keep away from individual stocks, especially if they came from
their own home country, and instead, they should invest in a "world portfolio".
This way, investors would be able to benefit from growth in the global economy.
At the same time, they would be sufficiently protected from unpleasant surprises
and crises in individual countries and sectors. Does this diversification idea
still hold true today?   Investors who are currently investing in the MSCI World
Index are buying up to 65% in US stocks. This is the highest weighting of US
stocks of the last 40 years. In contrast, stocks from China and India − the
second and sixth largest economies in the world − are entirely absent from the
index.   Investors currently worrying about the concentration risk in the MSCI
World Index are less worried about the US being heavily weighted in the index
than about the large weighting of US technology and internet companies with
stocks such as Apple, Microsoft, Amazon, Alphabet and Facebook dominating the
index. Nvidia and Tesla are further heavyweights in the US technology sector.
These seven stocks jointly make up 18% of the index.   The key question for
investors is now whether a bubble has formed once again in the MSCI World as was
the case in earlier phases − such as in Japan, for example.   Our view is as
follows: Although the shares in the index have a high valuation, there is no
question of any bubble forming.   Even though US stocks are overweighted in the
MSCI World Index and investors therefore fail to achieve the desired
diversification, this is no justification for concluding that a crash is
imminent. On the contrary: The valuation of the index would become cheaper in
the next few years on the back of the high earnings growth of many companies if
share prices do not rise any further. This is good news for investors since it
would increase the likelihood that the MSCI World Index will remain a good
investment in future.   Christian Kahler

Continue reading
Jul
02
2021
 * Bond Markets

0


COVERED BOND PRIMARY MARKET FACES WORST YEAR SINCE 2002!

Apparently, a little was still too much! In November 2020 we had forecast a
meagre EUR 90bn for the new issue volume of euro benchmark covered bonds in
2021. At mid-year, a look at the primary market offering of only EUR 46.3bn to
date reveals that our already pessimistic forecast was apparently even too
optimistic, as from January to June usually significantly more than half of the
annual new issue volume is placed (average since 2002: 63%). Of course there are
some arguments that could speak for a certain revival of new issue business in
the second half of the year. These include for example the continued good new
business in mortgage loans, the total outstanding volume of which within the
eurozone increased by 5.2% to EUR 4.8 trillion between May 2020 and May 2021,
according to our calculations based on ECB data (2020: 4.4%, 2019: 3.9%). On the
other hand, however, there are two heavyweight arguments that, in our view,
speak against above-average primary market activity in the second half of the
year. The TLTRO III tenders offered to the banks by the ECB for refinancing are
simply too attractive in times of shrinking interest margins for the
institutions to do without them. In addition, the deposit base continued to grow
during the corona pandemic, further reducing the need for capital market
refinancing. All in all, we believe that this will lead to comparatively few
covered bonds being publicly placed in the second half of the year - despite the
arguments for more new issues. We are therefore reducing our new issue forecast
for euro benchmark covered bonds from originally EUR 90bn to only EUR 75bn for
2021. With maturities of EUR 131.6bn, we therefore expect a net new issue volume
of minus EUR 56.6bn - according to our data, the largest minus in the history of
this segment. With outstanding volume of euro benchmark covered bonds totalling
EUR 844.7bn as of 30 June 2021, this corresponds to a drop of a whopping 6.7%.
At the same time, the annual new issue volume of EUR 75bn would be the lowest
since 2002.   -- Thorsten Euler

Continue reading
Jul
01
2021
 * Bond Markets
 * Sustainability (ESG)

0


ESG RECORD GROWTH IN THE COVERED BOND MARKET, BUT STILL A DELICATE PLANT

The first half of the year is over. Time for a ESG mid-term review (as of 30
June 2021). In the first six months of the current year, a total of eleven
covered bonds in ESG format and denominated in euros were issued amounting to a
total of EUR 8.25bn, whereby we refer in this study to ESG covered bonds with an
issue volume of at least EUR 250m. This means that the total ESG volume from the
previous year was already exceeded in the first half of 2021 (2020: EUR 8.15bn).
This seems particularly remarkable considering the low new issuance activity in
the covered bond market. As in previous years, green mortgage covered bonds
continued to dominate this year's ESG issues on the primary market.   All in
all, the total outstanding volume of ESG covered bonds amounts to EUR 32.2bn. In
line with developments in the ESG primary market, mortgage covered bonds
currently outweigh ESG bonds overall (84%), while the share of outstanding
public-sector covered bonds has further decreased. In addition, green covered
bonds continue to have the highest market share of the total ESG outstanding
volume (65%).   In the current environment, which is characterised in particular
by somewhat weaker demand for covered bonds compared to the first quarter of the
year, bonds issued in ESG format stand out positively and - from an investor's
perspective - often bring with them an increase in attractiveness. Although we
do not see the systematic spread difference (greenium) between ESG and
conventional covered bonds on the secondary market that is often discussed in
the market, in our view there is likely to be a lower placement risk for ESG
issuers overall. This is particularly relevant for those issuers whose bonds do
not qualify for the ECB's purchase programme.   All in all, we assume that the
ESG bond segment will continue to gain importance in the covered bond market in
the future. The first half of the year in particular has shown that ESG issuers
have successfully issued more and more bonds in ESG format despite the overall
weak primary market supply. Therefore, the ESG delicate plant should continue to
grow vigorously in the future! Verena Kaiser

Continue reading
Apr
19
2021
 * Euro Zone
 * Banks / Regulation

0


NEW PFANDBRIEF ACT INTRODUCES SOFT BULLETS, NO GRANDFATHERING

On Thursday, 15 April 2021, the German Bundestag approved the amendments to the
Pfandbrief Act, which was the final parliamentary hurdle. Probably the most
important change is the introduction of a possible maturity extension (soft
bullet) for pfandbriefe, which will come into force as early as 1 July 2021,
also retroactively for all pfandbriefe already outstanding. In future, the cover
pool administrator (or Sachwalter as administrator of the cover pool after the
insolvency of the pfandbrief bank) will be able to extend the maturity of the
pfandbriefe by up to twelve months if necessary. This will better secure the
liquidity of the cover pool, which has already been positively noted by the
rating agencies. This regulation supplements the cover pool administrator’s
toolbox, who is also permitted, for example, to take out bridge loans, sell
cover assets or issue new pfandbriefe to bridge liquidity bottlenecks. The
directive requires that the redemption sequence of outstanding pfandbriefe may
not be altered through the use of the maturity extension. This caused some
headaches and was therefore regulated in quite detail in the Pfandbrief Act.  
In our opinion, the regulations on liquidity reserves within the cover pool have
turned out to be strict. The maturity extension for pfandbrief may not be taken
into account when calculating 180-day liquidity needs (the legislator has also
clarified that liquidity calculations must be made on the basis of time to
maturity of the cover assets). Therefore, despite the future soft bullet,
pfandbrief banks must not only maintain the necessary liquidity for upcoming
coupon payments, but also for maturing pfandbriefe within the cover pool for the
next 180 days. In other countries, a soft bullet reduces these liquidity
requirements accordingly.   In Summary, the Pfandbrief Act was in many respects
the model for the European covered bond directive. The need for adjustment in
Germany was therefore quite manageable. Overall, in our view, the pfandbrief
market should nevertheless benefit from the directive in the long term, because
it creates common international quality standards that provide a solid
foundation for the regulatory privileges of European covered bonds. — Jörg Homey

Continue reading
Feb
08
2021
 * Germany
 * Stock Markets
 * Economy

0


DAX RISES TO 15,000 POINTS BY THE END OF THE YEAR

DAX companies have come through the crisis year 2020 very well. The reporting
season for the final quarter is still underway, but company sales are expected
to have fallen by only four percent last year. Profits should have been 14
percent lower than in 2019. In previous recessions, profits fell by an average
of one-third, much more than last year. Equity analysts expect profits in
Germany's leading index to rise by 30 percent this year and post record profits
again as early as 2022. Although companies' earnings expectations in the past
have (almost) always proved to be too optimistic in retrospect, this assessment
is in line with the course of previous earnings cycles on the stock market. As a
rule, it took around two and a half years for the old profit highs to be reached
again. The prerequisite for a sustained recovery in corporate profits remains a
stable forecast of the course of the Corona pandemic and the associated extent
of the restrictions for each individual. One risk to the forecast is a
significant deterioration in the infection situation due to virus mutations. The
good global economic trend in 2021/22 should also boost DAX companies. These
have a stronger export position than the "average" German company. Because it is
now becoming apparent that the recovery in profits will take place by 2022
instead of 2022 or 2023 as we previously forecast, share prices should also
benefit more quickly than previously expected. The second reason, in addition to
the better earnings performance, that leads us to revise our stock market
forecasts, is the improved outlook for the political environment compared with
November 2020. Brexit and Donald Trump have now (finally) been removed as
"sources of volatility" for the markets, which could not have been foreseen with
such clarity at the beginning of November, so politics should become more
predictable in 2022 than in the past four years. We are raising our index
forecast for the DAX to 15,000 points at year-end (previously: 14,000). The Euro
Stoxx 50 should reach 3,800 (3,600) points as of Dec. 31. Based on current
consensus earnings estimates for 2023, the DAX and Euro Stoxx 50 would be valued
at price/earnings ratios of 13.9 and 14.7 respectively if these forecasts were
to materialize. In a historical comparison, the markets would then be somewhat
more expensive than in the past, but in view of the generally very friendly
liquidity and central bank environment, this premium is also justified. On the
way to new stock market highs, mainly because of the still uncertain outlook for
the further development of pandemic control, prices should repeatedly reset
before continuing to climb thereafter. Market setbacks happen frequently, and no
one can always predict them accurately. We would not be surprised to see a
moderate setback after such a strong rise. Nevertheless, we are only at the
beginning of a new "bull market," driven by a sustained economic recovery,
attractive equity valuations relative to bonds, and more than a decade of
underinvestment in equities relative to bonds. Cristian Kahler

Continue reading
Jan
29
2021
 * Germany
 * Stock Markets
 * Economy

0


DAVID VS. GOLIATH 1:0 - WHAT'S REALLY BEHIND THE "GAMESTOP" SPECULATION

In one of the biggest hedge fund bailouts since the fall of Long-Term Capital
Management ("LTCM", 1998), the firm "Melvin Capital" was saved from ruin this
week. The firm had previously speculated on sharply falling prices of various
stocks such as Gamestop (selling video games) or AMC Entertainment (cinemas).
Both companies had recently suffered greatly from the Corona crisis and the
structural trend towards online media, so betting on falling prices seemed
lucrative. But the organised resistance of numerous "small investors", organised
via the internet platform Reddit, destroyed the hedge fund's strategy within a
few days. The investors colluded with each other and drove up the prices of said
shares with small purchases each.  Since, for various reasons, more Gamestop
shares were sold short than actually existed, the so-called "short squeeze"
occurred and Melvin Capital had to cover open positions at dramatically higher
prices. In view of the parabolic price development, market observers in this
country felt reminded of the price explosion of the VW share in 2008. As a
result, the fund suffered heavy losses, which had to be offset by a cash
injection of 2.75 billion US dollars from other hedge funds (Citadel, Point72).
The spreading price speculation around shares like GameStop, AMC Entertainment,
Nokia or here in Germany Varta is based on a coordinated action of private
investors against hedge fund managers and analyst boutiques betting on falling
prices. The anger of the small investors, who are mainly based in the USA, runs
deep. Many of the investors are clients of the online broker "Robin Hood", which
in turn has become known for regularly selling on its clients' orders as a flow
of liquidity to the hedge fund firms already mentioned. In addition, although
the financial industry in general (including analysts, by the way) has been
increasingly put in its place by regulation, some quite questionable "short
sellers" or hedge fund managers who bet on falling prices are still allowed to
spread their horror scenarios in the media. In addition, in the USA, unlike the
large hedge funds, "normal" clients rarely have access to the allocation of
lucrative new issues. "Pump and dump" or "scalping" of smaller stock titles on
message boards or social media channels is as old as the internet itself. And
before the internet, it was stock market hotlines and cold calling. This time,
however, things are different. Until now, it was mostly lone perpetrators (as
excellently portrayed in the film "Wolf of Wall Street") who manipulated events.
This time, however, the "crowd" wants to make common cause against the big Wall
Street addresses. This again brings a term into play that many market
participants already know from the Bitcoin world: The keyword is "DeFi", the
abbreviation for "Decentralised Financial Markets". The core of this theory is
the assumption that established (centralised) price formation processes, such as
in IPOs or on stock exchanges, must take a back seat to new, decentralised
platforms in the long run. In the world of cryptocurrencies, this development
has been observable for some time. Will it also take place on the stock markets?
So far, this is not foreseeable. But much depends on how US brokers, exchanges
and regulators will react to this week's developments. The next few days could
remain choppy in the markets, as the current speculation already caused the
highest turnover in stocks on the US exchanges since 2008 yesterday. Until the
current turmoil subsides, volatility is likely to remain elevated, at least in
small- and mid-cap stocks. However, large-cap stocks on both sides of the
Atlantic should not be dragged into the wake of volatility in smaller stocks.
Once again, it appears that most investors are better served by staying away
from trading in stocks of bankruptcy candidates, options or even speculating on
credit. For investors betting on long-term rising prices, there is no need for
action. They should stoically continue to pursue their strategies. -- Christian
Kahler

Continue reading
Jan
25
2021
0


FAMILY AS A SUCCESS FACTOR

A new study by DZ BANK Research shows: Family businesses are of great economic
importance for Germany: over 90 percent of businesses are family-owned. They are
not only located in urban areas, but often also in rural regions. In some cases,
they are of enormous importance for the economic structure there. The Corona
pandemic is also leaving its mark on family businesses. According to an ifo
survey, around 80 percent of businesses suffered a drop in orders last year.
Family businesses are facing structural challenges. Demographic change will
strongly influence the future development of businesses. In the context of
generational change, a suitable successor is not always found, and the shortage
of skilled workers is also a problem in many industries and rural regions. On
the technical side, digitalisation is changing established business models and
structures. Especially in rural areas, however, the expansion of the digital
infrastructure is not yet far advanced. Here, it is the task of the state and
local authorities to help businesses. Family businesses play a significant role
on stock exchanges, especially in Europe. There are between 700 and 900 listed
family businesses in Europe. Within the last 15 years, the share prices of these
companies have outperformed the broad share indices. There are several reasons
for the better share price performance. The owners have a clear focus on
sustainable and long-term growth and not on individual quarterly results, as
salaried managers sometimes do. But there are not always only success stories
among family businesses. Many owner-managed businesses have failed in recent
years, not least because of personal disputes within the family. Investors who
want to invest in shares of family businesses should therefore look carefully
beforehand. In a recent study, we ourselves analysed the German family-owned
companies BMW, Hella, Merck and Wacker Chemie, as well as the European companies
Kering ("Gucci"), Inditex ("Zara") and Heineken. Christian Kahler

Continue reading
Jan
21
2021
 * Euro Zone
 * Banks / Regulation

0


QUALITY LABEL FOR ENERGY EFFICIENT MORTGAGES GOES LIVE

The "Energy Efficient Mortgage Label" (EEML), a new quality label that banks can
obtain for their mortgages granted to finance energy efficient properties, will
soon be introduced to the banking market. The label, which was primarily
initiated by the European Mortgage Federation/ European Covered Bond Council
(EMF-ECBC), will be officially launched at a virtual event on 12 February. The
EEML is intended as a private-sector quality label for consumers, lenders and
investors to identify energy efficient mortgages in the portfolios of credit
institutions. It is also intended to support "green" projects at EU level (e.g.
EU Green Deal). Banks can apply for the EEML for their loan programmes that meet
the requirements for energy efficient mortgages defined by the Energy Efficient
Mortgage Initiative (see chart) as part of a self-certification process. Upon
receiving the label, banks must report at least quarterly on key features of
their EEM portfolio using a standardised reporting format (Harmonised Disclosure
Template, HDT). The HDT is intended to become a global reporting standard for
energy efficient mortgage portfolios. In our view, the label for energy
efficient mortgages is a first step in the right direction to provide more
transparency in the green mortgage market. However, the EEM definition on which
the label is based is formulated in very general terms and, at least at present,
as we understand it, is based only on current market standards, which are also
likely to vary from country to country. -- Thorsten Euler

Continue reading
Jan
08
2021
 * Euro Zone
 * Economy

0


EURO-AREA ECONOMIC OUTLOOK: THE HOPE FOR THE RECOVERY LIVES!

The Corona pandemic is in the middle of its second wave, but the signs of an
imminent economic upturn are increasing. This is illustrated by the current
development of out leading economic indicator. The DZ BANK Euro Indicator rose
by 0.8 percent to a level of 98.8 points in January 2021. This means that the
indicator's annual rate of change of +0.2 percent is above the zero line again
for the first time in around two and a half years. The setback in November, when
the beginning of the lockdown in a whole series of countries had a noticeable
impact on the European sentiment indicators in particular, was more than made up
for in the past month. Almost all the sub-indicators included in the calculation
have recently contributed to the improvement in our leading indicator.  For
example, consumer confidence in Europe recovered somewhat in December according
to the EU Commission's survey. In the autumn months, the indicator had fallen to
its lowest level since the spring. In December, private households were somewhat
more optimistic about the general economic outlook, despite the economic
slowdown in many countries, and were no longer as pessimistic about the
development of their own financial situation as in previous months. Even the
willingness to make major purchases has recently increased again - although
retail stores have to remain closed in many places. Overall, however, and
despite the re-cent brightening, it must also be noted that sentiment indicators
are still well below their long-term averages and a thorough recovery in private
consumer spending is unlikely over the next 2-3 months. For example, consumer
confidence in Europe recovered somewhat in December according to the EU
Commission's survey. In the autumn months, the indicator had fallen to its
lowest level since the spring. In December, private households were somewhat
more optimistic about the general economic outlook, despite the economic
slowdown in many countries, and were no longer as pessimistic about the
development of their own financial situation as in previous months. Even the
willingness to make major purchases has recently increased again - although
retail stores have to remain closed in many places. Overall, however, and
despite the re-cent brightening, it must also be noted that sentiment indicators
are still well below their long-term averages and a thorough recovery in private
consumer spending is unlikely over the next 2-3 months. In the industrial
sector, on the other hand, the current situation looks much more positive. The
survey of purchasing managers currently even signals the best business climate
since May 2018, with the purchasing managers' index measured by IHS Markit
clearly in growth territory at 55.2 points. Accordingly, production expanded at
an accelerated rate, which is attributable to an upturn in new business. Export
orders increased particularly strongly. The EU Commission's survey of production
expectations in the manufacturing sector also signals a brighter business
climate. The outlook for companies has improved significantly following the deep
slump in the spring, even if the figures are still below their long-term
average. On balance, positive signals have also recently been coming from the
financial markets. While the interest rate differential between the capital and
money markets remained largely unchanged, share prices continued to rise in the
past month. All in all, the outlook for spring/summer 2021 is therefore quite
optimistic.   -- Dr. Michael Holstein

Continue reading
Jan
08
2021
 * Germany
 * Stock Markets
 * Asset Allocation

0


STOCK MARKET 2021: VALUATION LOOKS HIGH, IS HIGH, CAN STILL RISE

14,000 points in the DAX in an eventful week. At the moment, despite political
adversity in the USA, it is actually easy to be positive about the stock
markets. The end of the Corona pandemic seems to be in sight, despite teething
problems with vaccinations in Europe. The unpredictable US President Trump is
about to leave, the hard Brexit has been avoided and central bankers are pushing
ultra-expansionary monetary policy to the extreme. Above all, the central banks'
often miraculous monetary expansion looks like a huge marketing campaign for all
asset classes. In recent weeks, an optimism, as measured by sentiment surveys
and investor behaviour, has spread across the financial markets that has not
been seen in this form for a long time. A large majority of private investors
and financial professionals are "bullish", i.e. they are betting on further
rising prices. The prices of shares, corporate bonds, bitcoin and gold have
risen almost weekly since November. A positive mood on the stock market is
nothing bad per se. And indeed, the current optimism is justified. Inflation
remains low, so central banks will continue to provide the economy with ample
liquidity and keep short-term interest rates at zero. Long-term interest rates
will rise only slightly, but not so much as to derail the recovery. Negative
changes in monetary policy are not in sight for the time being. The Fed is
aiming for full employment, the ECB for permanently higher inflation. It will
probably take years before these goals are achieved. During this time, corporate
profits will rise, as they have in previous recovery cycles after recessions.
Sectors of the economy are likely to boom. This is very good news for the equity
markets, as it lays a sustainable foundation for the new "bull market" that has
been underway since March 2020. The historically high valuation of the stock
market would be put into perspective thanks to rising corporate profits, and
could even widen due to the low interest rate environment. Cyclical stocks, but
also "value" stocks, could catch up in 2021 with companies that have so far
benefited from closures and the shift to much more online activity. This trend
has been evident in the stock market since September. Since then, the lead of
equities has widened significantly and the rotation towards value stocks (and
small caps) is underway. The general optimism about equities is a common market
view. In the equity market, however, it has often proved a successful approach
to position oneself as a "contrarian", i.e. to trade against market opinion. In
January 2020, we had practised this in the DZ BANK asset allocation model
portfolio when we set the equity quota to zero due to the euphoric mood. This
year, however, contrarian positioning would mean that most of the current
economic and monetary conditions will reverse. This seems an unworldly
assumption. In the 2021 investment year, it seems more promising to invest with
the consensus rather than positioning as a "naïve" contrarian on principle.
However, the consensus itself may underestimate the extent of the economic and
earnings upswing. This has so far been dominated by concerns about the upcoming
vaccinations. This is reflected, among other things, in the unusually high
savings rates of citizens. Should this burdensome knot of uncertainty and saving
be loosened, earnings growth in the markets could turn out to be higher than
previously assumed. Stocks that have lagged the market for years could become
top performers in the upswing, at least temporarily. The market winners of 2020
do not have to become losers in the process; the upswing could simply be more
broadly spread than in recent years. We see no reason why the stock market could
be permanently under pressure in 2021. -- Christian Kahler

Continue reading
Jan
07
2021
 * Politics
 * USA

0


TRUMP SUPPORTERS STORM U.S. CAPITOL

The images in the news yesterday of the formal certification of the US election
result by US politicians were terrifying. Trump's supporters stormed the US
Capitol and thereby the seat of the US Congress, the US legislature. The
situation quickly escalated. US President Trump, who is still in office,
appealed to protesters to act peacefully. However, he did not clearly ask them
to leave or criticise them. He still maintains that he did not lose the
election. By contrast, his Vice President, Mike Pence, publically demanded that
Trump supporters leave the Capitol peacefully. US President-elect Joe Biden has
called on Trump to officially accept the election results. Police and security
forces were able to secure the building. The session in Congress continued.
There is obviously a (probably small) proportion of the population that will not
stop at anything, including violent and armed protests. This is without doubt
certainly not true for all US-Americans. At the moment it is unclear whether
this development could tip sentiment in favour of Joe Biden, even among
Republicans. All in all, the most recent events are unlikely to prevent the
inauguration of Joe Biden on 20 January. The Supreme Court and many different
regional courts have declared the November US election as legal. Nevertheless,
the coming weeks are likely to be difficult for Joe Biden and many US
politicians. The fact that the two Senate seats in Georgia were actually won by
the Democrats should greatly facilitate the start of the Biden administration.
However, the most important task for the new US administration will be to unite
Americans again. -- Birgit Henseler

Continue reading
Dez
29
2020
 * Stock Markets
 * Asset Allocation

0


SIX LESSONS INVESTORS CAN TAKE AWAY FROM 2020

The year 2020 is drawing to a close. It will go down in the history books as one
of the saddest years in decades. 75 million people were infected with the Corona
virus, some of them suffering from serious late effects. Over 1.7 million people
lost their lives as a result of the Covid 19 pandemic. Behind every death there
were indescribable human tragedies. But the virus also had an impact on other
areas of life. Above all on global economic performance, which collapsed this
year despite support. But the world of work and the lives of every individual
also changed. Technological trends were intensified, the triumphal march of
digital products and services progressed. The virus also affected politics.
Disagreements over fighting against the corona virus and general policy
directions were exposed and amplified via the leverage of social media.
Political divisions increased, as demonstrated not only by the US presidential
election. In stark contrast, 2020 saw developments in the financial markets. The
credit markets were pricing in an ideal world, as were the equity markets. In
2020, the MSCI World Index gained 15 per cent, the DAX gained 4 per cent, and
the Nasdaq-100 soared 46 per cent. There is no sign of the sharp crisis from
March 2020 at the turn of 2020/21, on the contrary. The markets were helped by
the fiscal stimuli of the states, which reacted quickly and replaced income
losses for companies and workers in order to avoid mass unemployment. The very
aggressive liquidity injections by the central banks had an even stronger
effect. These also reached record dimensions, stabilised credit markets and
supported share prices. At the end of the year, we often receive questions about
what lessons investors can take away from the events of 2020. This is a question
that every reader should basically answer for themselves. The best way to do
this is to analyse what went wrong in one's own portfolio in 2020. We ourselves
think that the following points are important: 1. the stock market is not the
economy (but it is close) The companies in the major stock indices have been
more successful in the past than the "normal" companies in a country, otherwise
they would not have grown so strongly and been represented in the indices.
Moreover, share prices are influenced by many factors (market sentiment,
investor behaviour, liquidity, interest rate development, availability of
investment alternatives, political influences) to which companies are hardly
subject outside the stock market. 2. companies can adapt quickly to difficult
situations Most companies have constant change firmly embedded in their DNA. As
early as 2021/2022, the profits of DAX companies should be able to reach their
old highs again. The strong companies put pressure on weak competitors during
the crisis and become more profitable. Disproportionate profit increases at
individual groups are conceivable if costs have been cut in 2020. 3. the support
measures for the markets and the economy seem unlimited The huge amounts of
liquidity provided by the central banks act on the stock markets like a broad
marketing campaign for so-called "risk assets" such as gold, bitcoin and
equities. Without the low interest rates, many companies and countries would no
longer be able to bear the interest burden and would be at risk of default. 4.
in hindsight everything has always been obvious 2020 felt like a year in which
investors could either earn 10 per cent on blue chips or 300 per cent on US tech
stocks. Investors who belonged to the first category should not mourn the price
gains of the others. These were not predictable. 5. there has never been a year
without a crisis in the financial markets As harrowing as the Corona year 2020
was: In recent decades there has not been a single year without a crisis in the
financial markets. Cold War, 9/11 or Brexit crisis: In fact, however, share
prices have risen fairly consistently during this period, with seven to nine
percent price gains per year. 6. diversify your portfolio, pay attention to good
companies, don't sell in panic. This will also bring success in the future
Investors who sold their portfolio positions during the price low in March would
have missed a good investment year. However, with a focus on several good
companies in the portfolio, a long time horizon and a lot of composure, many
supposed problems can be avoided. Christian Kahler

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Dez
21
2020
 * USA

0


NEW US FISCAL PACKAGE DOES NOT LEAD TO RISE IN YIELDS ON US TREASURIES

Policymakers in the United States have agreed on a $900 billion fiscal package.
Financing requirements will therefore remain high in the coming year. The aid
measure will undoubtedly be financed largely by new debt. This will inevitably
be accompanied by an increase in US government bond issuance. The more
government bonds are issued, the greater the risk of rising yields for US
government bonds. We believe this risk to be limited for the United States
though. There are several reasons for this expectation. On the one hand, the
inflation rate remains at a low level for the coming year. On the other, many
global investors consider US government bonds to be extremely safe and liquid,
so they are likely to invest accordingly. Strong demand for U.S. government
securities, especially in these uncertain times in the wake of corona, should
help prevent a sharp rise in yields. The main reason for persistently low yields
in the United States though is the Fed's bond purchases. The question as to who
is going to finance the enormous budget deficit and the associated huge emission
needs of the United States can be answered, at least as regards the next one or
two years. Given the fragile economic situation, the Fed should prevent US
yields from rising due to the high budget deficit. There are good reasons for
this: Higher yields would weigh too heavily on economic performance. By holding
the federal funds rate low for a long time and the purchase of securities, the
Fed has extremely effective instruments to limit a possible rise in yields. Due
to the sharply rising budget deficit, yields could rise over the next few years,
but not to the extent that the soaring US debt would lead one to fear. -- Birgit
Henseler

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Dez
18
2020
0


DEAR READERS,

We are very pleased to welcome you to our new DZ Research Blog. It is the
continuation and successor of "Bielmeier's Blog", which was launched by DZ
BANK's outgoing Chief Economist Stefan Bielmeier about ten years ago. Here you
will find comments and assessments from DZ BANK's Research team, in the same way
you were already used to from Bielmeier's blog. We analyse and evaluate economic
data, financial market developments and political events for you - always
up-to-date and competent. Find your way through the day-to-day information
jungle with us! The expert knowledge of around 85 analysts will continue to
ensure that you can always feel well informed on economic and financial issues.
If you have not already done so, please subscribe to our newsletter to keep up
to date with new blog posts. We wish you informative and enjoyable reading!

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Dez
15
2020
 * China
 * Economy

0


CHINA'S ECONOMY IS "HUMMING" AGAIN

China's economy is running at full speed again, with industry in particular
"humming", while the retail sector is increasingly making up for its losses from
the spring. This is shown by the latest figures for industrial production (7%
y/y) and retail sales (5% y/y) from November. At the same time, sentiment
readings from the industrial and service sectors have almost universally climbed
to multi-year highs. The momentum of the Corona recovery has thus continued
unabated in the closing quarter of the crisis year 2020. Economic growth is
currently expected to return to pre-Corona levels, and we expect a growth rate
of around six percent in the current fourth quarter. In 2020 as a whole, China
is one of the very few economies to achieve positive economic growth at all.It
borders on bitter irony that the country of origin of the pandemic has become
one of the winners of the crisis. China's export economy in particular is
benefiting - despite the global recession - from the high global demand for
industrially manufactured goods. The country produces what is particularly in
demand during the crisis: medical protective equipment, office furniture,
electronic equipment for work and leisure. But home improvement supplies are
also selling like hot cakes, because many consumers, especially in the
industrialized countries, are now spending their money on investments in "their
own four walls" instead of on vacations, visits to restaurants or concerts. It
is therefore hardly surprising that China has seen strong sales growth,
particularly in North America and Europe, and has been able to significantly
expand its market share in recent months.China seems to have been able to avoid
a second wave of infection thanks to its rigorous "zero cases" policy.
Certainly, the surveillance methods used by the Chinese leadership are more than
questionable from a Western perspective. However, they have succeeded in
restoring the Chinese consumer mood and significantly strengthening domestic
demand. Many service providers are currently benefiting from strong catch-up
effects. In addition, government investment measures continue to stabilize the
domestic economy.The current export boom remains a special boom. It will come to
an end when strong catch-up effects in the consumption of services occur
worldwide with an increasing number of Corona vaccinations. The isolation from
the outside world that China is using to protect itself from "imported"
infections may also cause economic damage in the long run. Finally, there is
Beijing's goal, recently formulated under the catchphrase "dual circulation," of
making itself less dependent on the global economy, which could lead to
productivity losses in the meantime. So there are numerous downside risks to the
medium-term outlook.

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Dez
14
2020
0


RESULTS OF DZ BANK'S 50TH SME SURVEY: COVID-19 STILL A BURDEN

The Corona pandemic has SMEs firmly in its grip. Increased infection figures and
a renewed lockdown are preventing the economic recovery from the third quarter
from continuing for the time being. The longer the crisis lasts, the greater its
impact will be on many companies. It is little consolation that some sectors,
such as construction, have so far been largely spared the negative economic
impact. Overall, the results of our current representative survey of 1,500 SMEs,
which we conducted for the 50th time this fall, show that the mood among SMEs is
somewhat more positive than at the time of the first lockdown in the spring.
Nevertheless, the current crisis represents the greatest challenge for SMEs
since the financial crisis, if not longer. However, SMEs went into the crisis
well prepared: according to calculations by the Bundesverband der Deutschen
Volksbanken und Raiffeisenbanken BVR (Federal Association of German Cooperative
Banks), their equity capitalization rose from 7.5 percent in 2001 to 27.6
percent in 2019. Despite all their reserves, however, the companies directly
affected by the two lockdowns in particular are often dependent on government
support measures to survive. These should be granted as unbureaucratically as
possible. However, our survey shows that this may not always have been the case:
In the midst of the Corona crisis, it is bureaucracy that is causing SMEs the
greatest concern, not the effects of the crisis itself. However, the crisis was
also a wake-up call for many companies with regard to future topics such as
digitization and innovation. The two lockdowns, the significant increase in
demand to conduct business over the Internet, and the increased need to use home
offices due to the existing distance regulations forced companies to act
quickly. In doing so, they demonstrated good adaptability. Increased use of
digitization will not only help SMEs get through the current crisis better.
Greater use of new technologies will also make them more competitive for the
future.A detailed version of this blog post, which includes the latest results
of our SME survey and the BVR's VR Balance Sheet Analysis, as well as an
extensive appendix of tables, can be found at www.mittelstandsstudie.de .

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Dez
11
2020
 * Euro Zone
 * Politics
 * Bond Markets

0


THE RECONSTRUCTION FUND IS NOT A GAMECHANGER

After tough wrangling, Poland and Hungary have given up their opposition to the
EU reconstruction fund. If the EU Parliament also agrees, the fund can probably
be launched in the first half of 2021, later than originally hoped. Southern
Europe in particular is eagerly awaiting the billions in payments. Hopes are
high that the funds will not only mitigate the economic damage caused by Corona,
but also that there will now be financial leeway for creative economic policy.
Rightly so? The EU funds will certainly help selectively, but they are probably
not a "gamechanger" for the core problem of growing economic divergence within
the EU. A look at where the funds will mainly go and where the problems lie
makes this clear. In order to ensure that the funds are used as efficiently as
possible, the states cannot dispose of the funds as they wish; they must submit
plans for this purpose to the EU. A large part of the funding is likely to be
spent on investments, for example in the areas of transport, health,
digitization and sustainability. If obstacles to growth can be removed in this
way, the approach sounds quite promising at first. However, it is questionable
whether the projects proposed to Brussels will in practice be selected primarily
according to economic or political criteria. In fact, the Italian government is
currently arguing about this. While Prime Minister Conte would like to bring in
external experts for project selection, the cabinet insists on having a say. But
if political and regional proportionality considerations play a major role,
economic efficiency quickly takes a back seat. And Brussels will hardly be
willing or able to intervene in national policy as a corrective. Another problem
is that the main obstacles to growth in Italy and Greece do not necessarily lie
(only) in infrastructural deficiencies. Companies repeatedly report that too
much bureaucracy, long procedural durations and legal uncertainties sometimes
weigh even more heavily. In comparative studies such as the World Bank's "Ease
of Doing Business Index," some southern European countries rank at the bottom of
the field of industrialized nations. But money alone is not enough to increase
competitiveness. It takes a lot of time and, above all, the political will to
tackle and reform encrusted structures. Knowing that the reconstruction fund is
not a game changer, the Italian prime minister only this week called for
permanent payments from the EU. However, the experience of national financial
equalization mechanisms such as the German Länderfinanzausgleich also shows that
money can reduce social inequalities, but can only promote economic convergence
to a limited extent.

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Dez
10
2020
 * Euro Zone
 * Politics
 * Bond Markets

0


A DISPUTE RARELY COMES ALONE

The political dispute within the tripartite alliance in Italy threatens to
escalate. For days now there has been disagreement between the government and
the Five-Star Movement (M5S), which is part of the government, about the reform
of the ESM. However, cracks are now opening up within the government as well.
The dispute revolves around the procedure regarding the use of the money that
Italy is expected to receive from the EU reconstruction fund. Specifically,
Prime Minister Conte plans that the use of the funds will be coordinated
primarily by him and Finance Minister Gualtieri, and both will be supported by
managers with comprehensive powers. The remaining members of the cabinet,
especially those from Italia Viva and the PD, view this as an affront and also
take their criticism to the public.The strongest criticism currently comes from
the small government partner Italia Viva. Former Prime Minister Renzi is
demanding that Conte completely abandon his plans for a "parallel cabinet". His
party is not prepared to compromise on this issue and would otherwise vote
against the budget law. Although Renzi does not threaten to explicitly break the
coalition, the prime minister would be seriously damaged if he lost the trust of
the parliamentary majority in the midst of the Corona crisis. If the current
dispute within the government can be successfully resolved, it is nevertheless
clear that the three-party alliance is increasingly standing on shaky ground.
Conte's plan deliberately aimed to depoliticize concrete decisions on the use of
funds. If the decisions were to be made by the entire government after all, this
would possibly result in new potential for conflict. It is also to be feared
that stronger political influence will reduce the efficiency of the use of
funds.Shortly before the upcoming ECB Council meeting, the market is still
largely ignoring the upcoming political storm in Rome. However, if the situation
escalates or even the coalition breaks up, uncertainty could increase and higher
market risks could be reflected. However, the extensive bond purchases by the
ECB continue to speak against sustained excessive risk premiums.

Continue reading
Dez
08
2020
 * Euro Zone
 * Politics
 * Bond Markets

0


ULTIMATUM WITH CONSEQUENCES

Brussels seems to be losing patience in the dispute with Poland and Hungary over
EU finances, including the EU Reconstruction Fund (NGEU). Instead of using the
summit of heads of state and government on 10 and 11 December for negotiations,
Budapest and Warsaw are supposed to give up their blockade attitude beforehand.
As a means of exerting pressure, the Reconstruction Fund is being discussed as a
multilateral construct without Poland and Hungary, if necessary. Both Central
European states would then go away empty-handed for the time being. Up to now,
they have mainly resisted the idea that both payments from the NGEU fund and
regular EU budget funds should be tied to principles of the rule of law. While
the principle of unanimity within the EU applies to financial issues, the
remaining EU states could tie EU payments to conditions of the rule of law even
against the will of the dissenters.However, neither the Polish nor the Hungarian
government has so far shown itself willing to give up its blockade attitude. The
probability has thus increased that the ultimatum will initially pass without
result. It is still possible that both sides will come closer afterwards,
because Poland and Hungary are both beneficiaries of NGEU funds and net
recipients of the regular EU budget. But even Brussels is unlikely to be
interested in the fact that from January onwards, in the midst of the Corona
pandemic, only an emergency budget will apply for the time being. Until a
solution is found, however, it is quite possible that the EU will initially rely
on a "Plan B" and launch the reconstruction fund even without both countries.The
market for euro-denominated Polish and Hungarian government bonds has so far
hardly reacted to the escalating conflict. However, if Poland and Hungary do not
give in this week, spread widening would be quite possible against the
background of the threatening fiscal consequences for both countries. In 2019
Poland received a net amount of around EUR 12 billion from the EU budget (around
2.5% of GDP), and in Hungary's case the share of economic output is even higher
at 4%. The subsidies planned under the NGEU would also probably amount to over
EUR 30 billion for Poland and almost EUR 8 billion for Hungary.

Continue reading
Dez
08
2020
 * Commodities Markets

0


OPEC+ HAS LEARNED

As late as spring, Opec+ had sent the oil price on an epic downward spiral due
to disagreements. The corona demand shock was accompanied by production
increases - a perfect storm! The oil cartel reacted belatedly and significantly
reduced production. Last week there was another showdown in the oil world. This
time it was not about production cuts, but about production increases. In other
words, the question of how much can be increased without counteracting the oil
price stabilization of the last weeks. With a possible increase in production of
two million barrels per day, the stakes were once again high, but Opec+
presented a production increase plan ("tapering of the cutbacks") that came as a
positive surprise. According to this plan, production will be increased by
500,000 barrels per day in January. In addition, it will be decided on a monthly
basis whether production will be further increased or reduced again in the order
of 500,000 barrels depending on market conditions. We consider this to be a
reasonable approach, although it cannot be a permanent condition. Iraq, for
example, would have liked to increase its production even more significantly. In
addition, the US frackers will also pump more oil again. Saudi Arabia and Co.
will not accept this as a long-term permanent state. All in all, this is good
news for the oil price. In the short term, the high inventories and the still
weak demand speak for a small price setback. Over the next twelve months,
however, the strong economic recovery we expect should lead to an upturn in
prices.

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