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By Benjamin Summa
Mr. Hellmeyer, we are currently in the middle of a century crisis – the economy is collapsing, unemployment is shining through the roof. However, the equity markets on both sides of the Atlantic only panicked for a short time. Most of the losses were made up within a few weeks. What is your explanation for this?
Folker Hellmeyer: The driving force behind valuations on the stock markets is clearly the medium to long-term assessment of investors. And this assessment is positive, since the government-induced recession is only seen as a temporary phenomenon. In all likelihood, the pandemic will be medically manageable in the course of the next year. In the first step, these high investments serve to stabilize the global economy, but beyond that they cause strong growth in the area of new technologies. The recovery in value after the dramatic slump in the equity markets is an expression of what will happen in the medium to long term. In addition, profitable investments are becoming less and less. We will keep the low interest rates permanently. This makes stocks more attractive because they promise dividend yields that range from two percent in the United States to seven or eight percent in the emerging markets. For me this is the driver for the current valuation level. In the medium to long term, I don’t think it’s overrated.
So will the stock markets get off so lightly in the coming months?
That’s what I’m expecting. There are two reasons for this: Firstly, there is a very great interest on the part of professional investors to buy into the markets during weak phases that will undoubtedly happen again. Furthermore, the upswing we saw following the 2008/2009 financial crisis was much more dynamic than augurs like the IMF and World Bank had predicted. We could see this surprise again after the Corona crisis.
The mood on the executive floors of German companies recovered strongly in June from their drastic slump in the Corona crisis. The Ifo Business Climate Index measured the strongest increase ever measured. How do you rate the prospects for economic development in Germany and on a global scale?
I described it at the beginning: We are currently in an administrative recession and we are only gradually coming out of the lockdown. Against this background, it is not foreseeable that an economic level will be reached as it was before the Corona crisis. But for me, the resilience that many economies are showing in this crisis is remarkable. This resilience is reflected in the brightening sentiment indicators. Especially in the world’s largest economy, China, the basis for a high growth path after the lockdown has ended is extremely strong. We will likely also benefit from high catch-up effects over the next year. And the economic and structural programs will not fail to have an impact either.
In your view, which sectors of the economy will be the winners and which will be the losers after the pandemic?
There will be a renewal of the economic system in large parts of the world economy. In the future, the focus will be on sustainability and efficiency. I expect a makeover in Europe. The time of saving dead gives way to a completely new approach. The expansion of future-oriented systems will be pushed ahead massively. In this respect, I am very confident for Europe. Against this background, China and the entire Euro-Asian region will also develop positively. In the United States, I see significantly fewer tendencies for a rejuvenation, for example in infrastructure, but America is of course very strong in the technology sector. I am less confident for Africa and South and Central America. These regions will be among the losers of the new economy.
The event scene will remain under pressure with regard to individual industries, as will the tourism industry. In my opinion, the consumption habits of large sections of the population will change in the long term. The same applies to values that have to do with stationary trading. The corona crisis is a catalyst for online trading. Due to the many economic programs that are now being launched worldwide, I am also positive for cyclical values, i.e. plant and mechanical engineering, paints, paints, chemicals. The companies located here supply the products that are urgently needed for a realignment of the economy.
We are currently seeing an eight-year high in gold prices in US dollars. And in euros, we’re only a few percent away from the all-time high. Why is precious metal so popular again?
In a sensible portfolio, up to ten percent of the available assets should be invested in physical precious metals. We still live in a dollar-based system, but a turn away from the world’s leading currency can be seen everywhere because the United States no longer adheres to the contracts and rules of supranational organizations. Alternative asset classes such as gold will benefit from this dollar shift. Many smart central banks are building massive stocks of precious metals.
Image sources: BLB