Central Banks’s musical chairs game..

Investing in Capital Markets has been like a musical chairs game over the last few years with Central Banks as bandmasters playing desperately faster so as to revive sluggish economies. The financial crisis trauma of 2008 is still in minds and fears of a financial collapse with domino’s effect are haunting the place.

In spite of their nervousity, markets seem however to show some good resilience and somehow trust in the ability of governments and Central Banks to prorperly manage tumultuous transitions.

As such Europe’s case is very interesting – Greece’s bold position with its official creditors (European Commission, International Monetary Fund, European Central Bank) have been mounting fears of a potential Grexit and financial collapse for Europe. Although markets remain nervous and demonstrated high volatility, investors are still there, showing growing appetite for Europe’s investment case.

The booster shot remedy 

Beyond Europe’s structural issues, the massive bond buying initiated by the BCE in March 2015 (EUR60bn monthly up to september 2016) provided the old continent with a powerful remedy to revive investment and domestic consumption. Definitely, the european recovery is well anchored and should appear stronger over the next months.

  • Growth earnings and operating margins are definitely on the growing trend, supported by low interest and weaker Euro – thus favoring export oriented companies.
  • Though well expected, it seems however that the market did not fully integrate yet improvement in margins. This leaves room for a potential rally when results will be announed and confirmed by the end of the year.
  • EU corporates valuations are still 30 to 40% lower compared to pre-crisis valuations, which provides potential of upward correction.
  • Not only will stock valuations be driven by export oriented corporates but also by a wave of cross-borders mergers and acquisitions that are gaining ground in Europe: with cheaper credit and improved margins, confidence is rising and time is now for organic and more oportunistically external growth.

How to choose the right Fund Manager

Beyond this very attractive backward, the whole panorama is not glossy though: inflation is still looming, structural reforms are highly if not urgently needed and not all corporates will benefit from the current favorable macro conditions.

But as we said, it is a “musical chairs” game and as such you have to keep playing while the Chief Orchestra is performing. Most important of all, you have to target the righ chair and in this case we’re talking about the right Fund Manager that won’t grant you with a broken chair. While large Fund Managers can provide reasonable and average performance, a look at boutique ones can give the opportunity to find little gems : true experts on their niche market and well introduced in the european corporate environment, they’ll be able to target the good stallions – still better than a pony..