The "frauen&finanzen" platform in Zollikon by Lake Zurich is dedicated to ensuring that women receive good financial information and can apply it to their own investment strategies. Dr. Fleur Platow is the founder of frauen&finanzen and has been involved with the advisory board of Fondsfrauen since its inception. Fleur recently released a market report for the second half of 2024, which we partially publish here.
Germany Continues to Lag Behind
Investors take note: in May, the forecasters of the Organization for Economic Cooperation and Development (OECD) expressed optimism despite the sluggish global economic environment. There are signs of a budding recovery, even though overall growth remains modest. This is despite the continued negative impact of restrictive monetary policies, namely the relatively high interest rates, particularly in the real estate and credit markets. The global economy remains quite resilient. Inflation is falling faster than originally anticipated, and confidence in the private sector is improving. Additionally, the labor market and real incomes (income after deducting the inflation rate) are expected to improve.
My opinion: It goes without saying that the development will vary from country to country. Unlike the robust growth in the USA and many emerging markets, Germany will continue to lag behind.
Swiss Key Interest Rates at a 15-Year High
In Switzerland, the KOF Economic Barometer of ETH Zurich shows better conditions but still little momentum. In May, indicators from manufacturing, financial and insurance services, and foreign business performed negatively. Our neighbor and main export partner Germany, the "sick man," is also showing signs of a downturn! The cooling is especially noticeable in mechanical engineering, the chemical and pharmaceutical industries, while Swiss key interest rates are at a 15-year high
Consensus on Global Earnings Growth of Just Over 3 Percent
Overall, the global economic scenario is relatively stable against the backdrop of restrictive financial conditions (higher credit costs) and other factors such as the Ukraine and Middle East conflicts. The OECD supports this with its growth forecast for the global GDP for 2024/25 at +3.1 percent and +3.2 percent compared to 2023.
Conclusion: The global economy is losing pace compared to the decade before the 2008/09 financial crisis, but growth is coming close to estimated potential rates. This is good news for risk assets like stocks because a so-called "soft landing" makes it easier for central banks to manage interest rate changes. This, as UBS Switzerland's chief economist Daniel Kalt recently emphasized at a press conference, would also support robust corporate profits. This is good news for risk assets like stocks because a so-called "soft landing" makes it easier for central banks to manage interest rate changes. This, as UBS Switzerland's chief economist Daniel Kalt recently emphasized at a press conference, would also support robust corporate profits. Daniel Kalt kürzlich in einer Medienkonferenz betonte, zugleich robuste Unternehmensgewinne unterstützen.
Solid Valuation of Stock Markets
The consensus on global earnings growth supports this thesis. According to the Austrian Erste Group, indicators suggest an average earnings increase of +6.6 percent for this year and +10.7 percent for the next year.
Conclusion: The expected price-earnings ratio of the global stock index is 18.5x, and the global dividend yield is 2.0 percent. These data suggest a further moderate increase in global stock market indices by the end of the year..
ECB Cuts Interest Rates for the First Time in Almost Five Years
Additionally, the European Central Bank (ECB) cut interest rates on June 6 for the first time in almost five years. Christine Lagarde , ECP President, and her team lowered the key interest rate by 0.25 percentage points to 4.25 percent. The deposit rate, which is crucial for the euro financial market and which banks receive for parking cash positions at the central bank, was reduced to 3.75 percent from the previous 4.00 percent.
The ECB last cut interest rates in September 2019. With this move, it follows the central banks of Canada, Switzerland, and Sweden, which have already initiated upcoming rounds of rate cuts. The influential US Federal Reserve (Fed) has so far remained steady, although inflation in the United States has also moved away from peak levels. However, the economic growth of European countries is less robust than in America. As a result, consumer price inflation has decreased more significantly in Europe due to tight monetary policy, lower energy prices, and reduced pressure from supply chain issues than in the US.
The OECD also highlights that food inflation has drastically fallen in most countries because grain prices have significantly dropped from the highs reached at the start of the Ukraine war. In contrast, inflation in the service sector, particularly wages, remains stubbornly above the pre-pandemic average in most countries.
AI as an Accelerator of Productivity and Innovation
A so-called "sweet spot" in the current environment is artificial intelligence (AI). It already provides participants with massive advantages:
- Fostering good customer relationships
- Reducing their carbon footprint
- Securing their supply capacities
- Increasing their productivity (work performance in a given period).
Many companies see AI as a tool to achieve these goals. However, its recognition by others is still a challenging issue. Experts believe AI has the potential to boost productivity growth and accelerate innovation. Nevertheless, the assessment of its impact on productivity is viewed as a topic with considerable uncertainties.
Festzustellen ist, dass der Anteil der Firmen, die KI einsetzen, insbesondere bei den großen Konzernen drastisch angestiegen ist. Nach Ansicht der OECD dürfte der Netto-Effekt der KI auf die Produktivität von vielen Faktoren abhängen: Unter anderem von der Intensität, zu dem die neuen Technologien konzentriert oder aber weit verstreut innerhalb der einzelnen Firmen genutzt würden; auch das Ausmaß, zu dem KI Arbeitsplätze vermehrt anstatt vermindert, sei ein wichtiger Aspekt.
My opinion:There is no doubt that AI represents a megatrend that will continue to influence the world in the coming decades. A key role will be played by the productivity gains that AI can contribute within the stock universe. Therefore, this topic is also attractive for investors. Investment tip: iShares ETF Automation & Robotics, an ETF with USD 3.046 billion fund volume and global tech sector stocks, total expense ratio 0.40%. Anlagetipp: iShares ETF Automation & Robotics, ein ETF mit USD 3.046 Milliarden Fondsvolumen und globalen Aktien aus dem Tech-Sektor, Gesamtkostenquote 0.40%.
Warning of Exploding Public Debt
The aforementioned OECD forecast includes concrete warnings in addition to positive and negative aspects: fiscal policy must sustainably address the rising pressure of debt. The share of public debt is increasing in many countries. Governments face growing fiscal challenges due to rising debt and spending ratios, such as the aging population, climate change, and increasing defense budgets. Furthermore, the OECD warns of the rising costs of significantly increasing public debt that needs to be managed. Therefore, it calls on countries to initiate efficient spending growth reforms and establish credible tax plans soon.
The OECD also encourages stronger political actions to promote innovations and talents that support technological progress, productivity increases, and job security. Innovation is crucial for successfully and cost-effectively tackling climate change. In this sense, the OECD advises: "While most research work will occur in the private sector, government strategies could and should support innovations in the long term."
My opinion:The increasing use of AI is likely to be associated with growth and acceleration effects, which will positively impact the worrying debt structures in the long term.
Those who want to read the complete financial market forecast by Dr. Fleur Platow can find it on the website of Frauen&Finanzen.
About Dr. Fleur Platow
- Finance journalist Fleur Platow was a Zurich foreign correspondent for International Reports on Finance and Currencies, a subsidiary of the Financial Times in New York, for over a decade.
- She has incorporated her wealth-building experiences into her Frauen&Finanzen seminar.
- From 1997 to summer 2013, she was a consultant and member of the executive management of the Smart Ladies' Investment Club (SLIC).
- She founded the Swiss Women's Fund Forum in cooperation with SLIC.
- Investment expert Fleur Platow is the author of several books and a member of various advisory boards, including Fondsfrauen.
Photo credit: Gaby Schmidt
Under this author name you will find guest contributions from various people that we publish on their behalf.