Frankfurt The world is experiencing three crises at the same time: war, corona and climate change. Measured against this, the capital markets are surprisingly robust. They seem to be following the motto: if I don’t know anything specific, nothing will bother me. Bonds have been sold en masse recently, and share prices have come under pressure again and again. But even that is more of a sign of normalization.
Because the central banks are turning away from their ultra-loose monetary policy, which was ultimately induced by the crisis, yields are rising, which is putting pressure on the bond market. And stocks have only come down from valuations that could only be justified by ultra-low yields.
Investors are looking at a kind of unstable equilibrium. They have to consider what certainties are left and draw their personal conclusions from them.
Some trends, such as the year-long stock rally, have fizzled out. For others, such as rising interest rates, it is unclear how much the markets have already anticipated. One suspects that the period of low inflation and low interest rates, once referred to as the “New Normal”, is permanently giving way to a new normal with higher percentages.
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What’s more, the crises can at any time bring about a cataclysmic change in the framework conditions. It is almost impossible to make reliable forecasts in this complex situation. An ugly argument has broken out among German economists, particularly over the question of what the impact of stopping oil and gas supplies from Russia would be.
No scenario for an end to the war
Economists are bitterly debating whether the German economy could handle an embargo or not. Some of the accusations are aimed at alleged lobbying, economic models are being questioned or defended with the statement that the other side has not really taken note of them or has not understood them. The guild thus creates confusion, although their task would be the opposite.
So what certainties remain? Above all, we must realize how little we know. Because of today’s complexity, all forecasts should only be understood as very rough indications.
What’s more, even the experts can’t think of a realistic scenario at the moment as to how the war could be ended. Neither side is ready to give in and neither side is in a position to win the war. This crisis may therefore last longer than we are now assuming.
Another point: real yields, that is, with inflation discounted, are likely to rise. The central banks are under enormous pressure to combat high inflation. If they raise nominal interest rates and at the same time inflation falls, the real interest rate rises.
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In addition, climate change and armament require investments, which drives up interest in the real economy. After all, these investments will also offer investment opportunities.
But investors should be careful now. And be clear: hedging with bonds costs something – due to inflation and price losses of interest securities with rising yields. As before, profit must come from stocks, from those companies that can make a profit even in difficult situations. Purely speculative investments, on the other hand, have a high potential for setbacks.
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