The economic and financial background is however quite different from that of 2011

"Our "Governance" approach is in fact in line with the philosophy of the "Manageurs" range"
Stéphane Furet
Deputy Chief Executive Officer and Co-Chief Investment Officer

Hopefully, the global economic and financial context is better that that expected by the Cassandra at the beginning of the year. The Chinese economy has stabilized, at least for the short-term, and, crucially, the US consumer is back. Moreover, the risk premium on high-yield bond markets has declined strongly thanks to the stabilization of commodity prices. In short, the scenario of a global recession is highly improbable. In Europe too, things have changed radically since 2011, with an hyper-active ECB that has just begun to start its programme of corporate bond purchase, and that is now lending to banks at a negative rate. Southern Europe is thus better protected now. Another crucial difference with 2011 is that European banks are much healthier now, with solvency ratios close to or in excess of the requirement of the regulators. Finally, fiscal policies are considerably less restrictive now than they were during the euro crisis. While tax hikes and spending freezes produced a huge fiscal drag of 3.5% of GDP from 2011 to 2013, fiscal policy is today neutral to slightly expansionary for the euro zone as a whole. On financial markets, the Brexit risk has had time to be largely priced in over the last few months. Against the dollar, for example, the UK pound is to day only 3% below its mid-February level. The risk premium on UK medium-sized companies has fallen to its level of the great recession for 2009, while the discount on European stocks versus the US has reached 25%, the same level as in mid-2012, and twice as much as its normal time level.


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