Investors should hope for Berlin

SINCE last year, I have had a growing number of conversations with investors who are considering whether European equities are starting to look more interesting because the European Central Bank is clearly still choosing to maintain the negative interest rate environment. The rationale behind the thinking of several investors is that the continued extremely loose monetary policy in the eurozone makes the stock market more attractive than on the other side of the Atlantic.

It is a possibility, but before clearing the holding of US equities completely, it should be noted that the Fed is going hard on interest rate hikes because they consider the US economy to be very strong. My own assessment is that the economic strength increases the likelihood of further rounds of price increases, therefore prolonging the period with high inflation. The other and positive side of the coin is the strong macroeconomic tailwind in the United States, and to turn the stock markets positive again, I regard gross domestic product (GDP) growth as particularly important in 2022 and 2023. The joy of the upcoming reopening of societies has been included in stock prices several times, so now, the trust in the stock markets must be proven via high economic growth, which after all, is found in the United States.

I am more skeptical regarding the eurozone. The new German government is up for stronger cooperation among European Union members, but it is at the political level. The new German Chancellor Olas Scholz, recently very deftly said that the great common EU rescue package is far from being paid out, so that must be sufficient. Put another way, Germany is not ready to fund further growth packages for the EU right now.