Markets are again very agitated. What could be the magnitude of the correction
Volatility will remain high some time yet. The Euro Stoxx (which has already lost 18 since mid-April, Editor's note) could still decrease by 10, if continued turbulence and political tensions increase in Korea of the North.
The plan of support of 750 billion euros in the euro area, it remains a plan: despite the approval of the German Parliament, there are many uncertainties about its implementation. Will all parliaments the vote How Governments of some small countries will do accept people having to put in their Pocket And this especially since the European divisions on the crisis management remain strong.
The pressure may therefore remain strong in the coming days...
The markets will continue to test the willingness of Governments to implement measures to reduce the deficit. Because decided to fund does not solve the problems of indebtedness of the States in the longer term. Turbulence should continue as long as there is no precise answer to this. Fears about the debt will not necessarily be limited to the euro area: they could then affect the United Kingdom and, to a lesser extent, the United States. In addition, short term movements are also related to management techniques: many companies have "budgets" risk predetermined: they must sell risky assets to obey their models, that is the decline in the shares.
And by the end of the year
I remain optimistic for actions on a horizon of 6 to 9 months. The market should move from 10 to 15 in Europe and the United States, between now and the end of the year, which would bring the CAC 40, for example, around 3.800 points. Global growth is strong and solid: we expect 4 GDP growth this year in the world. Even if the peripheral countries currently weigh on markets, unimportance their weight: the Greece, the Portugal, the Spain and the Italy represent 30 of GDP in the euro area, but only 6 of global GDP.
The current tensions are therefore not at risk, you return the markets a year and a half back
The main risk is the risk of liquidity: the worst would be that investors are forced to sell the shares to find the cash, as seen at Lehman Brothers. But in my view, there is no fear of "bis lehman": the banks of the countries of southern Europe do not have the same size! Above all, the context is different: in 2007, the crisis had intervened and fueled by a drop in the price of real estate.
Then, side business, the increase of profits should be stronger than expected. Analysts were not taken into account the sharp drop in the euro - that we see around 1.10 dollar year-, support-considerable export values. A new record of profits in the United States should be achieved in the fourth quarter. In Europe, the profits of enterprises in the Euro Stoxx should return as soon as 2011 their levels of 2007.
What are the main factors of uncertainty
Beyond the fears on the cits challenge of States, in the longer term, the main concern is inflation, which could come the raw materials, the strong growth in Asia, as well as the increase in the money supply. If the European Central Bank does not sterilize all its buyback, it might cause inflationary pressures. Markets will soon anticipate the return of inflation, even though it is expected that by 2012.
In this context, what country and what sectors do you
We are very positive on emerging markets. In the West, the outperformance of the US should continue. Above all, Wall Street rising should be done with less volatility. In Europe, differences between countries will widen. We have a clear preference for the DAX: the Germany has a high proportion of exporters. We sous-pondérons the countries of the South of Europe and "neutral" on the CAC 40. The France has more exposure than the Germany or Great Britain to the debts of the peripheral countries.
In sectoral terms, we recommend the cyclic, in a context of economic recovery. Prudence must remain on the banks and insurance, who hold the obligations of the countries of southern Europe.
How do you develop bond markets
We have a sous-pondération on the obligations of State of the major Western countries, except the United States, which the curve is very steep. The German Bund is too expensive. If the sovereign crisis deepened very beyond expectations, the Germany and the United States should only retain their AAA rating. The risk of degradation is particularly high for countries of southern Europe. However - and this is good news-, the countries of the euro area can now finance markets.