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Investment Report December 2017
Strategy overview In the year 1996 the former Federal Reserve Chairman Alan Greenspan de-
“Irrational exuberance versus ratio-
scribed events on stockmarkets as “irrational exuberance”. Does this state-
nal exuberance.”
ment also apply to the current state of markets? The fact is that the Dow Jones gained 331 points or 1.4% on the final day of trading in November. Within four days the index gained 714 points, rising above the level of 24,000 points for the first time in history. Over the month as a whole the Dow gained 3.8%. This made it the eighth positive month in succession, corresponding to the longest period of market expansion since 1995. We tend to share the view of the Goldman Sachs analyst David Kostin, who describes the current situation as “rational exuberance”. US companies, in particular, have posted steady earnings growth over the years. Another aspect is the lack of alternatives, brought about by the low interest rate environment. In addition, we think that efforts to reform the US tax system are likely to succeed, which should further boost stockmarkets. At the same time, some of the positives are already likely to have been priced in. At the political level, the situation is dominated by the above-mentioned tax
“The Saudi Crown Prince is taking an
reform in the United States, the events in the Middle East as well as the pro-
aggressive stance.”
cess of forming a government in Germany. Because the Saudi Crown Prince is seen as the driving force behind a tougher approach to Iran, in our view tensions in the Middle East are likely to increase. We are sticking to our view that global economic momentum remains intact.
“Overweighting of European equi-
A positive sign is that investment ratios have risen for the first time since the
ties relative to American”
financial crisis. This is the result of positive corporate expectations as well as looser lending by banks. As mentioned on numerous occasions in earlier Investment Reports, the US economy is in a late-cyclical phase. In the equities field we favour Europe over the USA. Seen from a historical context, stockmarkets in Europe are more attractively valued and in our view the earnings boosting potential is higher in the “Old World". In addition, US companies, FACTUM AG Asset Management
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