Delphi´s Stig Tønder sees choppy waters ahead for global equity investors
Stig Tønder, manager of the Delphi Global fund, has given his view of a global economy that is still not quite meeting expectations.
Since 2008, global growth and global shares have been in a kind of vacuum. This is primarily because of two crises; firstly the US financial crisis and secondly the European debt crisis. As we have said and written several times during the past five years, financial and debt crises are far more time-consuming and challenging to work one’s way out of than more “normal” cyclical downturns. For the stock markets, the macro uncertainty has resulted in a volatile investment climate, with major correlations between asset classes followed by periods when investors have sought refuge in defensive and liquid investments. In addition, there has generally been little willingness to invest in shares compared to interest-bearing savings. In total, this has made investment conditions demanding for active managers such as Delphi Funds.
The major challenges in the wake of the financial crisis have also led to many national authorities implementing massive packages of measures to increase the growth rate again – firstly in the US and UK and then in many European countries, most recently in Japan. China also applied a very stimulating policy at the start of the financial crisis, but this primarily related to finance.
Even with moderate global growth and major macro uncertainty, the stock markets have done well – and US shares have even been at an all-time high. The good share developments are to a large extent due to many countries’ stimulating policies (money printing) and quite healthy industries. Companies have had relatively low debt ratios and have actively cut costs to keep their margins high.
The pull towards defensive sectors
Positive developments in many stock markets do not necessarily mean the same as good investment conditions. Long-lasting macro concerns have caused investors to primarily seek large, liquid shares and defensive dividend shares. Such a unilateral focus is most often found in falling stock markets, but this time the capital flows have been strong enough to lift the stock market as a whole. This trend has led to many defensive companies now being priced highly in a historical context compared to the more cyclical companies.
Slow in Europe, but….
Things are undeniably going quite sluggishly in Europe. However, we believe the situation is slowly but surely improving. We saw signs of some of the European macro figures being a positive surprise towards the end of the first half-year and we expect this to be even stronger in the second half-year. Interest rates have fallen in Southern Europe, showing that there is now greater confidence in the markets. In addition, we can note that neither Greece nor any other country has left the eurozone and that the southern European countries are improving their competitive ability through lower wages and structural reforms. The latter two factors are crucial to long-term recovery and increased growth in these hard-pressed countries.