A good investment strategy goes a long way

See how our investment strategy responds to economic and financial events.

A good investment strategy goes a long way

See how our investment strategy responds to economic and financial events.

The comeback of Small and Mid Caps

Small and Mid caps have struggled for the past 3-4 years, but the tide seems to be turning. A recovering economy and falling interest rates may provide that extra push. In particular, the attractive valuation of smaller stocks relative to large market capitalizations presents opportunities for investors. Mark Van Assche, Private Banking and Wealth Office account manager, talks about it with Anthony Cruysmans, expert European Small and Mid Caps at KBC Asset Management.

05-06-2024

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What’s happening in the world? And what are the implications for the financial markets? 

Update June 6th, 2024

Economy

  • Economic data points in manufacturing and services seem to be slowly stabilizing, even in Europe. 
  • The US economy appears to be gradually shifting down gears. The manufacturing industry is seeing weakening demand and new orders. Personal income and household spending also came in lower. All this suggests thas US economic growth will be lower than in previous quarters.

Comodity prices - inflation

 

  • In both the US and Europe, the inflation trend is still on the downside.
  • Persistant underlying inflation (especially in the services sector) and recent volatile oil prices mean that the disinflation process is proceeding somewhat more slowly than previously thought. 
  • Espacially in the US, we are still seeing inflation rates surprise in the interim.

 

Fiscal and monetary policy

  • The exceptional stimulus programmes are being scaled back, but there is no sign of savings drift. 
  • Programmes such as EU Next Generation and the Inflation Reduction Act in the US are still substantial and continue to offer considerable support. 
  • China is also stimulating its flagging economy. 
  • Central banks in the US and Europe raised key rates at an unprecedented pace in an effort to slow growth and cool inflation. 
  • In their recent communications, the banks confirm that the disinflation process is still on track but that confirmation is needed before cutting the policy rate. 
  • The market is counting on an initial policy rate cut in June for the ECB, but is questioning the pace in the US.

Bond markets

  • Interest rates appear to have peaked. 
  • However, a range of inflation data (especially in the US) cast doubt on the timing and magnitude of the expected cut in policy rates. 
  • As a result, we still see interest rates making occasional bucks.

Equity markets

  • Equity markets recover from their April dip.
  • Profit expectations for the second half of the year may be a bit on the high side.
  • The first quarter reporting season is almost behind us. 
  • In the US, profits beat estimates by 8% knowing that earnings growth is 8%. For Europe, we see a 6% earnings contraction, beating expectations by 9%. 
  • As a result, the published figures exceed expectations again, which in all fairness were low at the start of the results season.

Risks

  • Oil prices have risen solidly since the beginning of the year. 
  • However, the conflict in the Middle East and Ukraine could continue to cause nervousness. 
  • Not an easy environment, therefore, for policymakers to take decisions on interest rates. 
  • The US elections may also cause volatility later this year.

Volatile bond yields, uncertainty about inflation and central bank interest rate policy, together with geopolitical tension, are causing nervousness on the stock markets. Meanwhile, the  U.S. economy is showing some signs of weakening. We remain neutrally positioned.

Siegfried top, Senior Investment Strategist KBC Asset Management

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