Ofelia Marín-Lozano | The Spanish financial sector has made an unprecedented effort to sanitise its books: since the beginning of the crisis in 2008, sanitising and provisions (amounting to some 260 billion euros) have reduced profit margins by two thirds, according to figures from the latest annual meeting of the financial sector. The role of digitilisation replacing branches was one of the recurrent themes of the meeting.
Articles by Ofelia Marín Lozano
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Ofelia Marín-Lozano |The variations in the exchange rate, over short periods of time like quarters, sales performances or results expressed in euros which can lead to simple, erroneous conclusions. This is even more true in the case of a European company with a greater weighting in markets where the dollar is the currency of reference. That is to say in any market outside, if not the Eurozone, then at least Europe.
One of the most objective measures for judging whether the stock market is expensive or cheap is the dividend yield. At the moment, the main global stock markets offer real returns which are superior to those of long-term sovereign bonds. For example, 34 of the 40 biggest French firms, those which make up the CAC40, have increased dividends over the last year.
Comparing the average PER of a current stock market index with what it was historically is a simplistic approximation and can lead to wrong conclusions. In fact, we should take into account the differences in ROE. In the big stock market indices (S&P 500 in the US, Euro Stoxx 50 in the Eurozone) companies with a greater ROE have been gaining more weight.
The fact the German bund (as well as the French bond) continue to offer significant yield differentials compared with the US bond, shows us we have not yet returned to complete interest rate normality after the euro crisis. But, since Macron’s elections as the President of France, the doubts over the irreversibility of the euro are dissipating.
Making judgements on “whether a market is expensive or cheap,” using aggregates of prices and earnings, is a very risky simplification. To begin with, there are companies which don’t make money or even lose it, and quite a lot of it. Responsible, professional investors don’t buy stock markets indices, they buy shares. They don’t invest “top-down” but rather “bottom-up”.
From a conservative standpoint, given the current dividend, the European bourse offers a higher return than the US stock market. At current prices, and taking into account the dividend paid against 2016 results, the Euro Stoxx 50 offers a dividend yield of 3.4% versus the 2.0% offered by the S&P 500. If we take as a reference the dividends estimated against 2017 or 2018 results, the outlook doesn’t vary much, maintaining a differential close to 1.5% of annual return, in favour of the European bourse.
Ofelia Marín-Lozano | As inflation increases, the TIPS (treasury inflaction protected securities) are the asset which offer the best peformance, ahead of commodities and equities (….)much better than traditional bonds in the case of rising inflation, very similar in the case of a decline in activity and worse in the case of falling inflation.
Ofelia Marín- Lozano | The productive model of the future should focus on boosting the country’s competitiveness (where education, the family, discipline and the incentive to do a good job are a necessary start). But sectors like construction should also be encouraged to recover their lost protagonism.
Ofelia Marín-Lozano | The exceptionally low interest rate scenario, with short-term rates even in negative territory, are undoubtedly an incentive for major corporate transactions. Being able to get 20-year funding at a fixed annual rate of below 2% is fuelling a slew of M&A deals which, in another scenario, would be prohibitive.