Kreuzkamp: The markets have left behind the peak of pessimism

Question. What are the prospects has presented to your customers by 2020? Response. In 2018 the markets anticipated an escalation of the trade conflict bet

Kreuzkamp: The markets have left behind the peak of pessimism

Question. What are the prospects has presented to your customers by 2020?

Response. In 2018 the markets anticipated an escalation of the trade conflict between the US and China and 2019 would end up splashing Europe. Now it is hoped some kind of agreement and this has returned confidence to the markets, who have left behind the peak of pessimism. We foresee that there will be no recession in 2020 and that the global economy will grow at the same rate in 2019, 3.1%. 12 months ago, the markets bet that the Federal Reserve (Fed) would raise interest rates and withdraw liquidity. Six months later, the Fed gave a turn of 180 degrees with three cuts of consecutive types. We do not believe that the change responds only to pressure from the president Trump, but to a desire to stabilize the economy. We expect the U.S. to grow by 1.6%, compared to an advance of slightly more than 2% in 2019. Trump need a photo shaking the hand of president Xi and will be able to sell a good deal with China in his election campaign. It is a precondition for his re-election in November. Although the trade dispute is having a negative impact, the u.s. economy continues to grow and there is full employment. Is the typical phenomenon of the end of the cycle: slow growth, probably for quite some time. For the eurozone we expect a breakthrough by slightly under 1%. It is a pace slower than the one in 2019, but our message is that there will be no recession.

Q. What is your outlook for the stock markets and bonds this year?

A. In the fixed income markets we expect interest rates to stay low for quite some time. That means that there will be no returns without taking risks. At DWS we are focusing on corporate bonds from emerging markets, particularly asian, that have an important weight in our portfolio. In the securities markets we expect earnings per share to grow again. In the united STATES has increased only 1% in 2019 and we expect it to make between 5% and 6% in 2020, the same as in Europe. In emerging markets we expect to grow at 9%.

Q. What are the risks considered?

A. If we are wrong in our forecast that there will be trade agreement between the US and China and imposed new duties, the trust will disappear very fast. It takes years to build trust and only minutes to destroy it. This would have a great impact on the stock markets and overthrew our economic forecasts for 2020. In the fixed income, the risks come from the opposite end: if the economic growth was higher than expected, central banks may give a new turn 180 degrees and opt for a more restrictive monetary policy, with a rise in interest rates in the U.S. and with the first rise in many years in Europe. And a factor that is rarely discussed is inflation. A resurgence of inflation triggered by an economic growth higher than expected could have a negative impact on both the stock market as in the fixed-income. We are cautiously constructive. We do not expect a big thing out of the fixed-income: a diversified portfolio will give a few returns, as much, between 1% and 2%. In securities markets the benefits will be between 5% and 6%. With a balanced portfolio and a combination of 50% fixed income-50% equity you can get returns of 3%.

Q. In what sectors see the best opportunities?

R . In the fixed-income committed primarily by corporate bonds. In Europe the reason is that the ECB has bought back for the value of 20,000 million per month, which is a lot in a market in and of itself quite narrow. The ECB will be responsible for that will not widen the spreads of debt, but to narrow. Corporate bonds give a return of 2% in the eurozone; the bonds of the State, virtually nothing. The best opportunities are in corporate bonds asian because they have a return very attractive, of between 4% and 5%. The default rates of the asian bond are very low and it is the only market in the world that is not influenced by central banks. 10 years ago it was a niche market, but it has grown a lot and is very solid.

Q. By what type of values bet DWS?

A. From 2016 the performance of the values growth fund (growth) far exceeds the stock value (value). Growing companies, mainly technology such as Apple, Netflix, Facebook or Google, have risen more than everything else, while of value, even good payers of dividends, have been below. The shares value are undervalued at around a 30% with respect to the growth. In 2020 we are going to focus more on value, but it is something soon to outperform the growth stocks in our portfolio.

Q. the US continues to have more weight in their portfolio than Europe. Why?

A. The reason is that the US is growing and Europe has a value, or do you know of a large technology company with a european? The decision of bet by the united STATES in the past two years was successful, but now there is a wide gap in valuation between the two markets and, in our opinion, Europe can be a positive surprise in 2020. Although we will remain focused in the USA, and probably reduce that exposure in favor of emerging markets and Europe. In addition, we will incorporate environmental and social criteria in our investments and we're going to reduce the weight of the energy companies to increase the asset sustainable.

Q. how Is the political instability in Spain cause for concern for investors?

A. 'm Not worried about the political instability in Spain, at least its impact on the european markets, as it has a low weight in the index. I'm more concerned in Germany. The new social democratic leadership has led the party to the left and has put in question the Government of grand coalition with the christian democrats. There are populist parties on the rise. One of them is Alternative for Germany, which has representation in the local Governments and the regional Parliaments. For us, in terms of investment, Spain is neutral: it can go in one direction or another. Since 2012, when Mario Draghi uttered the phrase “whatever it takes” Spain has done its homework: the debt/GDP ratio has dropped to 95%-96%. I am sure that the new Government will continue on this path. The unemployment, especially the youth, remains high, but has been significantly reduced. Spain is not bad, considering the situation in Germany, Uk Ornest and Italy.

Date Of Update: 12 January 2020, 11:00