It is part of the self-image of investment strategists of large fund companies to spread confidence.

Ultimately, fee-based products are to be sold to investors, particularly institutional customers.

The difficult market environment becomes all the more clear when a representative of this guild calls things by their proper name.

This is the case with Bernhard Langer, who has been a senior investment strategist at the American fund company Invesco for many years.

"The extent of the correction on the financial markets was larger than expected," he says in an interview with the FAZ

Markus Fruehauf

Editor in Business.

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The turnaround in interest rates and inflation are being driven by factors that show no signs of easing, he adds.

The supply chain problems depended on what measures China takes to fight the corona pandemic.

Energy and food prices would be affected by the Ukraine war.

According to Langer, at most a base effect from the price increase that has already taken place can occur in a year and push inflation down a bit.

“Things have already turned out much worse than expected in the supply chains, as well as in energy and food prices.

I don't expect the inflation to ease any time soon," is his sobering conclusion.

In the United States, according to his observation, there are also recession concerns.

The expectation of an economic downturn is almost a consensus there.

The analysts have started to reduce their earnings estimates.

"That means on the stock market that the valuations measured by the price-earnings ratio are still too high." Langer fears that there is still a need for correction here.

ECB is in a dilemma

The big question in European financial markets is whether the European Central Bank (ECB) has delayed tightening monetary policy for too long.

It does not want to raise interest rates until July, while central banks in the United States and Great Britain have already acted much more aggressively.

However, Langer does not believe that the rise in prices in Europe would have been significantly lower if the ECB had raised interest rates sooner.

The Invesco strategist points out that even the US Federal Reserve is accused of reacting too late, even though it is raising interest rates very aggressively – as recently by 0.75 percentage points.

According to Langer, the ECB is in a dilemma that is due to the construction of the euro.

It has to look at the yields of highly indebted countries like Italy and, unlike the former Bundesbank, cannot concentrate solely on monetary stability.

The analysts at DZ Bank recently compared this monetary policy dilemma with squaring the circle.

In view of the weakness of the euro, especially against the dollar, Langer assumes that the euro area will now also import inflation.

Because important imported goods such as oil are billed in dollars, so that the already high dollar price increases again due to the weak euro exchange rate.

"In my opinion, a lot has already been priced in on the bond markets, so I no longer expect yields to rise significantly," says Langer, referring to the sell-off on the bond markets since the beginning of the year.

Due to the high price losses, the highest in more than 20 years, yields have shot up significantly.

As the year progresses, Langer does not rule out the possibility of the yield curve flattening out or even inverting, which would be a clear signal of a recession.

In an inverted yield curve, short-term rates, like two-year yields, are above long-term, typically 10-year rates.

The bond markets then price in weak economic growth, which the central bank tries to stimulate by lowering interest rates.

This is reflected in the lower interest rates at the long end.

“The crypto market is dead”

Langer also notes a change in attitude in his conversations with clients: “For them, the issue of risk is particularly important.” He views the markets for crypto-assets as a barometer of fear.

A lot of trust was lost there, which is not only due to the fall in the Bitcoin price, but also to the closure of trading platforms.

"The crypto market is dead," Langer is convinced.

According to him, Invesco currently has a high liquidity ratio in its portfolios.

This is also the case with other asset managers because they want to play it safe in view of the uncertain prospects and therefore hold comparatively large amounts of cash.

Langer also points to the still high proportion of equities and sends afterwards: "We hardly hold any bonds." The securitization of corporate loans (senior secured loans) from banks, which have a short term and thus a low interest rate risk, are also interesting for him.

The real estate markets also remained in demand, although it had become increasingly difficult to find profitable properties.

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