Because the ECB will help when things get difficult

Siemens, Volkswagen and BASF have brought forward the announcement of quarterly figures this week because they are better than analysts expected. This shows the economic recovery in Asia and the export strength of German industry. After all, China was the only major economic nation to grow last year, and other Asian countries have the pandemic under control as well. China is now a more important export market for the German economy than our neighboring country France.

The good quarterly figures have spurred the shares of Siemens, VW and, for a short time, BASF, but not the overall market. The Dax is currently almost on the spot. Apparently, investors are torn: On the one hand, stocks are currently highly valued when measured against corporate earnings estimates by analysts for the next twelve months. The average price / earnings ratio for the 30 Dax stocks is therefore 16, for the 50 stocks in the Euro Stoxx it is 18. That is about 30 percent more than the long-term average. On the other hand, interest rates are low and more and more investors are worried about inflation, which helps stocks.

ECB is fueling inflation concerns

Inflation worries were further boosted this week by ECB President Christine Lagarde. She said the European Central Bank would do everything possible to ensure favorable financing conditions in the euro area. This can be interpreted as saying that the ECB is guaranteed to intervene with additional money if the capital markets dry up: for example, if no IPOs were possible on the stock markets, speculated on the bond markets against individual euro states and their interest rates increased or the euro should show undesirable strength. So Lagarde’s message to investors is: relax, the ECB will help you when things get tough. This is good news for the equity markets, but not necessarily for the euro and the long-term debt sustainability of the euro countries.

Startups get a lot of money

Investors are currently providing a lot of capital. Be it for the German fashion portal Mytheresa, which made a brilliant stock market debut in New York and is now worth 3 billion dollars; or for start-ups: venture capital that investors have put into Mambu, Sennder and Personio has changed the circle of German unicorns – this is what they call unlisted companies with a value of more than 1 billion dollars this year three startups swelled to around fifteen. The boom in jackets (spacs) on Wall Street also shows that many investors are currently careless. It also fits in with the fact that the major American banks that presented their business figures exceeded expectations, especially in the equity business. In 2020, Goldman Sachs achieved 40 percent more, JP Morgan and Bank of America around 30 percent and Citigroup even almost 60 percent more than in the previous year.

Experience has shown that the golden times on the capital markets will not last forever. It is always difficult to predict from which corner the wind will get harsher first. Currently, most investors assume that the pandemic can increasingly be brought under control thanks to vaccinations and that lockdowns will end in Europe after the first quarter. The fact that the good quarterly figures from Siemens, VW and BASF have largely fizzled out on the market as a whole could be an indication that investors are currently more susceptible to negative than positive surprises.


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