The first half of 2023 was characterized by impressive strength of global equity markets. Despite the ongoing war in Ukraine, interest-rate hikes on a global scale, inflation and recession concerns, the DAX-40 posted a healthy gain of 16 percent. The technology index Nasdaq even recorded its strongest first half-year performance in forty years, rising by 32 percent. Looking ahead to the second half of the year, many market participants are currently using these price gains as an opportunity to warn of corrections, or even imminent crashes on the stock market.
GANÉ does not participate in such short-term market forecasts. What we do know: The next correction is inevitable. What we don’t know: When it will come. It is impossible to make a serious prediction.
Instead, we keep an eye on the risk/reward ratio of individual investments based on expected yields. And these continue to be quite attractive in both asset classes, equities and bonds, for carefully selected investments.
While a handful of technology stocks recently led the gains on the U.S. equity market, stocks in sectors that have not been affected by the rally are starting to rise. The market breadth of the upswing is currently increasing. At the same time, however, the hurdles to equity investments are rising with each additional rate hike. Day-to-day cash deposits and short-dated government bonds are serious alternatives, which has led to a reduction in our equity allocation in recent weeks.
Nevertheless, there are still companies, such as Prosus N.V. or RTL Group, whose current distribution yield from share buybacks and dividends is more than 10 percent, significantly exceeding the expected yield for broad bond markets.
But the latter is also providing attractive opportunities again – thanks to the current inversion of the yield curve. For German government bonds with a short maturity of just one year, investors are being rewarded with a yield of 3.7 percent. U.S. government bonds with maturities of six and twelve months are currently even tempting investors with annualized yields of more than 5 percent. We use these lucrative interest yields, coupled with falling inflation and negligible risk in terms of creditworthiness, duration and liquidity, as a money market substitute. In this way, we retain the necessary flexibility to respond to future weaknesses in the stock market and to seize new opportunities in winning companies.
A constructive approach to asset classes is important to us. It makes us independent of short-term market forecasts.
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