Today’s equity investors have never seen a crash like that in March. The subsequent rally also breaks all records. ntv.de discussed the prospects for the coming year with the financial market experts Michal Wittek, Marco Herrmann and Reinhard Pfingsten.
n-tv.de: Hand on heart: Have you ever experienced such a speed, first with the Corona crash and then with the subsequent bull market. Doesn’t this violence break all records?
Michal Wittek: That’s true. Both the break-in and the recovery are unsurpassed in their speed!
Marco Herrmann: Very clear: the sale in March was a strong reminder of the worst phase in the financial crisis. The rapid recovery is really extraordinary.
Reinhard Pentecost: It was particularly worrying that there was temporarily no longer a sufficiently liquid market for various investment vehicles, such as some ETFs. In addition, in the past, technical corrections were made from time to time during such recovery phases immediately after a crash. That was not the case this time around and should explain why many investors missed the re-entry.
The aid measures of the central banks and the governments are also record breaking. Never before has so much money been pumped into the financial markets and real economies. There should be no shortage of liquidity in 2021 either.
Pentecost: Exactly, liquidity is not the problem. After the financial crisis in 2008, we saw that a large part of the liquidity provided by the central banks flows into the financial markets. It is the same this time. What is new is that we now also have broad fiscal policy support. That is likely to be a major factor in the economic recovery.
Herrmann: Yes, that’s true. Further support can be expected from both sides in 2021, even if it can of course no longer have the same oomph as it did this year.
In addition to the large amount of money that needs to be invested, the expected global economic recovery also speaks in favor of stocks. Will 2021 be a good year for stocks?
Herrmann: Yes, we remain optimistic about stocks with a view to 2021 and beyond. There is tailwind from further government economic stimulus programs, an abundant supply of liquidity from the central banks and, above all, from persistently low interest rates. The latter in particular should lead to an increase in valuation in the medium term. However, repeated setbacks on the stock markets are always possible. However, they then offer the opportunity to add additional positions at lower prices.
Wittek: I see it similarly. Due to the massive interventions by the states and the associated flood of money, real assets such as shares are more in demand than ever.
Pentecost: Basically we are also optimistic and still see potential upwards. However, investors shouldn’t expect too much either. The stock markets have already anticipated much of the economic recovery. Limits of fiscal policy, uncertain development of Corona – the stock exchange traders should be prepared for the fact that the stock markets could become a little more volatile again.
A major reason for the share rally is – as already mentioned by Mr. Herrmann – the low or negative interest rate level. Is that cemented in by the central banks in the long term?
Pentecost: Probably for the next few years.
Herrmann: Yes, exactly. We do not expect any rate hike in at least the next two to three years. After the financial market crisis, the US Federal Reserve waited six years to raise money.
Wittek: We will certainly no longer be able to reach old interest rates in the long run. However, if the central bankers tighten the money supply, the stock markets will react with huff.
Corona hardly plays a role on the global stock exchanges – and if so, then a positive one – keyword: vaccines. Is that too naive?
Wittek: The stock exchange is pricing in that we will slowly lead an almost normal life again in mid-2021. Of course, that doesn’t mean that the stock exchange will become a one-way street. At some point this scenario will also be sufficiently included in the courses.
Pentecost: Here too, you always have to keep an eye on the risks. It is far from clear that the complex logistics involved in vaccine distribution will function smoothly. In addition, vaccination must take place globally. A lot can go wrong there.
Let’s talk more specifically about the stock markets. In the US, the Dow Jones rose above the 30,000 mark for the first time. Technology stocks are driving the rally there. Is that healthy?
Wittek: The tech sector was the big Corona winner. On the other hand, we are concerned that the IPO events in New York are reminiscent of the Neuer Markt. It is not healthy for a company to go public and have a valuation that can only be justified by a market share of close to 100 percent.
Pentecost: If you judge by classic valuation standards alone, technology titles appear to be very expensive. These companies can be said to have benefited in particular from the pandemic. We all sit in the home office, work digitally and order online, etc. Most recently, however, we reduced technology stocks and bought financial and industrial stocks in return.
Herrmann: The valuations of individual stocks have already reached dizzying heights. With a long-term investment horizon, however, you can still find acceptably valued stocks from the sector, such as semiconductors.
German stocks have once again performed worse than US stocks. What is the reason? Is there too little new and too much old economy here?
Herrmann: Unfortunately, there are only a handful of global technology champions in Europe. As with football, the problem lies in promoting young talent. Abroad – especially in the USA – there are much better financing options for startups than here in Europe. We now have another chance to be one step ahead when it comes to green technologies. In the auto sector, managers have unfortunately not taken advantage of this opportunity.
Wittek: I see it similarly. Due to the lack of digital know-how, Germany has left the playing field to other countries. China and the US have hurried away with their big internet companies.
Japanese stocks also performed very well. Do investors in Germany have too many German and too few foreign stocks in their sights?
Pentecost: This is indeed a problem. Investors should always diversify internationally. Currently we are all under the impression of increasing case numbers and new lockdowns in Europe and completely overlook the fact that this second corona wave is not taking place in Asia. Instead, the economic recovery in China and other Asian countries has long since set in fully, which is also reflected in the good performance of the stock markets there. We’re investing in a kind of dumbbell: being overweight in the US and developing countries contrasts with underweight in Europe.
Herrmann: Japanese stocks continue to be very attractively valued. As a rule, however, German investors are not involved there. Probably because you read so little about Japanese companies beyond Softbank and Toyota.
With the rapidly increasing prices, so too have the ratings. Are there any areas that haven’t been hyped?
Wittek: Many stocks have certainly reached the zenith of their valuation for the time being. But we are still seeing low valuations in sectors such as cars and oil.
Herrmann: And due to the expected profit increases in 2021, the currently high share valuations will move back to a more moderate level. The DAX will then only be valued at 15 times the annual profit. The long-term average is 14. For the European STOXX 600, this figure falls to 17. US stocks are barely valued, and their price / earnings ratio (P / E) in 2021 remains at a high level of 21. However, given the high weighting of the faster growing technology sector and the generally better profit margins, a higher valuation premium is justified.
The cyclicals have recently jumped – to a certain extent out of anticipation for a strong economic recovery. Which do you think will be more promising in 2021: tech and healthcare stocks, that is, the winners from this year, or cyclically sensitive stocks?
Pentecost: Assuming the vaccinations are making good progress and the pandemic can be contained, there are of course a lot to be said for cyclical stocks. There is some catching up to do here. And the move away from lockdowns should unleash greater economic momentum from which these stocks will of course particularly benefit. One can definitely keep an eye on Europe here. Europe is clearly lagging behind in terms of economic recovery, but at the same time is benefiting from the good situation in Asia and the growing global economy.
Wittek: First of all, it has to be pointed out that the stock market has a life of its own. Nobody knows the future, so we never fully commit to one scenario. Here, too, diversification is everything. But to answer the question, we see more opportunities in cyclicals like industrial stocks.
Herrmann: Among the cyclist, we see good opportunities in the field of automation and robotics, because to improve our security of supply, we will see higher investments in production facilities in Europe and the USA. Of course, climate change remains an important issue, which will lead to more investment in green technologies. A large part of the government economic stimulus programs that have been adopted are aimed at better environmental protection.
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