Temps | Les actualités économiques et financières

Not all impacts of the new financial paradigm will be simultaneous

“When I was a revolution, I was a friend of earthquakes” wrote the Palestinian poet Mahmoud Darwich.

Revolution: Central banks were revolutionized in 2022, when they reversed the course of their monetary policy with historic ardour.

The most violent rate hike seismic blast in history swept away the trees of speculation that seemed to grow sky-high. Since their peaks reached over the past two years, thematic ETFs (Cannabis, Ark, Meme Stock) have lost 84%, 77% and 63% of their value respectively. Bitcoin and unprofitable technology stocks fell 76% against 30% for the Nasdaq.

For investors who entered the paroxysm of euphoria between 2020 and 2021, it is an almost complete destruction of the capital invested in these assets!

Those who, out of prudence, have favored the tangibility of defensive and “value” stocks have better protected their savings (The MSCI Europe Value TR has lost only 4.7% since its last highs at the start of the year)… provided that they do not have allocated too much weight to sovereign bonds which delivered one of the worst performances in their history.

Inflation figures Tuesday, December 13, FED meeting on December 14: the year is not over yet and caution seemed to be in order on the markets. Over the past week, only gold has been collected before the Christmas break.

Does this augur a year in which real assets and especially commodities will remain decisive for investors and companies?

Yes, because a rise in commodities during a recession (expected in the next 12 months with a probability of 62% in the United States) can compromise the angelic scenario of a soft landing (more or less zero growth in 2023) . In Europe, the rebound of the euro ($1.055) and the drop in oil prices are bringing a breath of fresh air to households and businesses. But their vulnerability to rising gas (and therefore electricity) prices remains intact. Especially since the majority of consumption efforts have probably already been made (-24% of gas consumption by European companies compared to the 5-year average). Going further is synonymous with a significant reduction in industrial production.

Meanwhile China is back on the buying side: its gas, oil and copper imports in November are at their highest since January. Metals (nickel, iron) have risen by more than 20% over the past month and TTF gas has risen by 64% since the “low points” at the end of October. The decline in commodities since the end of the first half is showing signs of stabilization. Their rebound will depend on China’s determination to reopen its economy despite the blood price to pay: 1.5 million deaths according to the journal Nature.

In addition to raw materials, real estate, the real asset of choice for consumers, must be monitored.

In certain European countries, in particular the Nordic countries, the high recourse to debt (up to 194% of the gross disposable income of Danish households!) and the weight of variable rate credit (90% of the debt of Finnish households!) creates a explosive cocktail.

If it has fueled the spectacular rise in prices (multiplied by 2.1 between 2010 and 2021 in Luxembourg, 2x in Austria, 1.8x in Germany, Sweden, Norway against 1.3x in France), it can also undo it, making household equity more fragile and debt servicing potentially problematic.

Concentrating 49% of their investments in offices and 15% in shops, the rents of SCPIs retain a certain sensitivity to the economic cycle. More worryingly, those that resort to excessive indebtedness to boost the yields served may have to be the first to liquidate holdings. As such, Blackstone’s decision to limit withdrawals from its Real Estate Income Trust Fund should remind us that due to its limited liquidity, this asset class is not immune to asset-liability imbalances.

As true as sound does not reach us as fast as light, the financial repercussions of the new inflation and interest rate paradigm will not be revealed simultaneously.

While listed assets were the first to adjust, now we need to be prepared for a slower but no less significant reaction of unlisted assets to the new paradigm of inflation and higher rates.

As a result of the banking disintermediation of the last ten years and the fall in interest rates, business risk has partially but increasingly migrated from bank balance sheets (published every three months by listed entities) to private capital. A growing number of them have recently resorted to Collateralized Fund Obligations to restructure the equity or quasi-equity of several hundred equity companies into a bond product.

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