A French management company, a subsidiary of the American group Lazard, Lazard Frères Gestion won a Fundclass 2022 trophy as the best European manager, in the category of companies managing between 71 and 100 funds. Matthieu Grouès takes stock of the markets after a very profitable year 2021 for investors.
Will 2022 still be a good year for equities?
Matthieu Groues: We think it will be much more complicated than last year. We had adopted this point of view even before the outbreak of the war in Ukraine.
In addition to this conflict, which of course upset the outlook for the year, we are facing two additional difficulties. First of all, some markets had become very expensive at the start of the year, in particular US equities. Looking at certain valuation ratios, such as the price-to-sales ratio, we saw that this market was at an all-time high, even more expensive than in 2000, in the midst of the Internet bubble. This was less true in Europe, where valuations were lower.
The other subject is the level of inflation. The health crisis has been incredibly violent and in return has generated a lot of aid from the States. Almost overnight, the economies reopened with, for economic actors, a strong capacity to consume. This has created a situation of overheating, which translates into high inflation. The Russian-Ukrainian war certainly has an impact on growth, but it also contributes to an increase in this inflation.
Are you worried about this resurgence of inflation?
It is the job of central banks to regulate inflation through interest rates. This therefore means that the monetary authorities should increase their rates quickly, particularly in the United States where the economy remains fairly protected against the shock of the conflict unfolding in Europe.
This upward trend in rates could weaken equities: what justified their high price at the start of the year was their higher yield than that of bonds. However, with a rise in interest rates, the latter could once again become more attractive and equities, in comparison, less attractive.
Admittedly, since the start of the war in Ukraine, rates have fallen again, but the rise in inflation suggests that the rise in rates will remain relevant in 2022. Not everything is negative, however, because the Economic momentum was good before the outbreak of this conflict: corporate profits were up and their margins had been restored. We will have to see in the coming months how things will evolve.
You have 17.89% of this article left to read. The following is for subscribers only.