'Interest rates remain low, equities more than ever a must'

20 november 2021
today at
10:50

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Despite the high valuations, investors cannot ignore equities, although high inflation remains a question mark. That is about the main conclusion of the chief economist debate on Finance Avenue.

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In front of a packed and masked hall, the chief economists Koen De Leus (BNP Paribas Fortis), Hans Dewachter (KBC) and Hans Bevers (Degroof Petercam) exchanged ideas about the state of the global economy and what the consequences are for an investor portfolio.

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They started with a look back. ‘2021 has become a year of recovery and a turning point,’ said Dewachter. It was coming, but there were still some surprises, both positive and negative. On the positive side, the economic recovery was particularly strong – we can speak of a ‘spring-loaded economy’ -, on the negative that the hope that herd immunity would be the only solution has been dashed for the time being.

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It is also questionable how sustainable the recovery will be. ‘The feared waves of bankruptcy and mass unemployment have not materialized, but we will emerge from the crisis in a structurally different world,’ says Dewachter. The question is how the central banks, which have pumped masses of money into the system, will manage that system. And there are also the higher government debts that limit the fiscal room for maneuver.

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Politicians will push to keep interest rates low. So don’t count on getting a lot on your savings account.

Koen De Leus

Chief Economist BNP Paribas Fortis

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Koen De Leus nevertheless thinks that we will emerge stronger from this crisis than from the great financial crisis of 2008/09. One important reason is that monetary policy is likely to remain loose for much longer. He sees interest rates rising, but overall they will remain very low. ‘Politicians will push to keep interest rates low. So don’t count on getting a lot on your savings account.’

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Inflation

A recurring theme in the debate was high inflation. De Leus sees them weaken at the end of 2022. Dewachter is more cautious: ‘It is difficult to say whether the high inflation is temporary or persistent. It is true that the inflation risks are higher the longer the high inflation lasts.’ Whether the inflation spike is temporary will depend not only on oil prices but also on supply chain disruptions. Economists are very divided about how long these disruptions will last, he says.

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Hans Bevers also points out the difference between the United States and Europe with regard to inflation risks. In the US, many people have not automatically returned to the labor market and there is upward wage pressure. There is also a shortage in Europe, but wages have not yet risen sharply. “ECB president Christine Lagarde is trying to say that to the markets and I think she’s right.”

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In the US, the path to a normalization of monetary policy is already well underway. The tapering (reducing bond purchases, ed.) has been announced. Dewachter sees the Federal Reserve raise interest rates twice in the second half of 2022, although they will still remain quite low. The ECB is far from ready because there is hardly any wage pressure.

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TRINA

If we project that onto the investor universe, where are we? ‘I understand that valuations have risen high, but we’ve actually been hearing that for ten years. In the long term you should nevertheless remain in equities, because the expected return is much higher there’, says Hans Bevers. According to him, we are certainly not at the end of the cycle and the digital revolution that is in full swing will also have a supportive effect.

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In the long term you should nevertheless stay in stocks, because the expected return is much higher there.

Hans Bevers

Chief Economist Degroof Petercam

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Does TINA still reign? ‘We even talk about TRINA: there is really no alternative’, says De Leus with a joke. ‘We remain overweight in equities, but we also look at laggards.’ He refers, among other things, to the growth markets that have been underperforming for twelve years while they are gaining more and more importance in the global economy.

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Another segment that should not be missing from a portfolio is technology. “If you hadn’t had it in your wallet for the past 12 years, you would have missed a lot.”

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‘Interest rates remain low, equities more than ever a must’

Inflation

TRINA

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