Investment expert Boris Parafinczyk of Gries & Heissel Bankiers AG predicts that the downturn will last some time yet - Europe may not pick up until 2010 ¿ Underweight shares now, rebound to be used tactically.
There is no longer any question that the economies of the industrial nations slid into recession no later than the fourth quarter of 2008. But even now, there is no consensus as to the scale and duration of the economic downturn, as the situation is too difficult, too complex and still extremely unclear. We take the view that there are three possible economic scenarios of varying probability: a sudden downturn followed by an equally sudden upswing, a downturn over a longer period of time followed by economic recovery and, thirdly, sliding into stagnation over several years.
In our view, the least likely scenario is the V-shaped development, in which the V stands for a sudden downturn and an equally sudden upswing, with a very narrow trough in between. As today's poor order situation already points to a longer trough period, we put the likelihood of this scenario coming to fruition at just 5%.
Longer downturn likely
We feel that a U-shaped consolidation with a broad trough, or a downturn over a longer period of time followed by economic recovery, is far more likely. This scenario, top of our list with a probability of around 65%, justifies the decisive action on the part of governments and the central banks. We calculate that the combination of reflationary monetary policy and recovery plans will contribute to a stabilisation of the economies. In this context, the development of the prices of raw materials, which could underpin American consumption in particular, is not to be underestimated. Against this backdrop, we believe that a stabilisation of the US economy in the second half of 2009 is likely. We in Europe will most likely have to wait a bit longer for recovery, possibly until sometime in 2010.
Arguments against stagnation over several years
In our estimation, an L-shaped development has a probability of only around 30%. The L represents a slide into stagnation over several years, as has been the case in Japan: low growth rates and possible deflationary developments. Even if this unfavourable situation does become reality for individual countries, we are much more optimistic for the large industrial nations. Even the USA, the greatest victim of the recession at the moment, is likely to benefit in future from its intact demography, high levels of demand from the new emerging regions and the enormous challenges of the ecological renewal process. Additionally, the North American employment market is extremely flexible, which means that it will adjust quickly to change conditions.
Strategic underweighting of shares, making tactical use of the rebound
Despite all fears, concerns and highly pessimistic economic prospects, the situation on the financial markets is most certainly not without its opportunities. For our asset management activities, we are planning to continue with the strategic underweighting of shares, with one eye to making tactical use of the rebound. The DAX is still a long way from rock bottom, which means that further losses on the German stock exchanges are to be expected. But the further the DAX falls, the better the prospects for the stocks of companies with solid financial backing and adequate assets.
Author: Boris Parafinczyk
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Further information about:
Martina Fassbender
Telephone: 0611 773 25 71
Fax: 0611 773 14 25 71
E-mail: martina.fassbender@deltalloyd.de
Internet: www.deltalloyd.de
Notes to editors:
About Gries & Heissel
With headquarters in Wiesbaden, Gries & Heissel Bankiers AG is a prestigious private bank which concentrates on private banking services out of its branches in Wiesbaden and Berlin. Since it was founded in 1987, the private bank has provided its exacting clients with comprehensive individual consultancy services, focusing not on selling its products, but on developing a tailor-made finance concept, measured precisely to the risk appetite, current stage of life and personal preferences of the client. More information is available at www.guh.de/
About Delta Lloyd
Delta Lloyd Deutschland is a 100%-owned subsidiary of the Delta Lloyd Groep, Amsterdam, and therefore part of the British Aviva Group. The company provides a wide range of financial, investment and provident products from a single source, as well as providing expert consultancy on all financial issues. In addition to Delta Lloyd Leben and Hamburger Leben, a pension fund and a consultancy for occupational pension schemes respectively, the Delta Lloyd Group in Germany also comprises the private bank Gries & Heissel and a mortgage broker.