Financial industry challenges in 2024

transcript

WHAT ARE THE RISKS THAT INVESTORS WORRY ABOUT? 

It would seem not very much. In the US, you have the S&P and Nasdaq at all-time highs. In Europe as well, you have indices at multi-year and all-time highs, such as the CAC, the DAX, the stocks. Even Bitcoin is up 60%, that's about eight times what the CAC has done, by the way. And even gold is up 4.5%, so not so much to worry about. Yet, when we speak to investors, there are a number of things which people do actually tell us they're worried about.

The first thing is higher inflation. Clearly, if there's higher inflation, central banks are not going to bring rates down, and that'll be a problem for market valuation. That is a problem. By the way, that is mentioned by about 30% of the investors that we talk about. We've seen in recent announcements that that is a problem. The US was supposed to bring down interest rates by 100 basis points so far this year, and in fact, it's looking more like 75 basis points. The way we look at that is that it's more about the general direction of travel than the actual speed of travel.We think we should be okay on that.

The second factor that investors talk to us the most about is geopolitics. And geopolitics actually used to be the thing that people were most concerned about. But fortunately, the fallouts from the various conflicts that we're having in Europe seem to have stabilized. And by this, I mean high energy prices and agricultural product prices started to come down. And so far, in terms of other conflicts, those seem to be localized and not moved out into regional or become regional conflicts.

The third factor that investors talked about to us as being a source of concern is a systemic credit event. About 20% of the investors that we talk to talk to us about that. That's mostly about commercial real estate in the US, in Asia, but also in Europe. The worrying thing about that is that as a percentage, that 20% is increasing where the previous two factors that I told you about, those are decreasing, this one's increasing.

The fourth factor that people talk to us about is an economic hard landing. That, most people have gotten wrong. It was probably the thing that people were most concerned about last year, and that has really fallen right off. I think a lot of economists, fortunately, got that wrong.

The final concern that people talk to us about are the American elections. This is mentioned to us by about 10% of clients, 10% of investors. At this stage, people know pretty much what Trump's and Biden's policies will be, so I don't think it's a big factor for investors.

Finally, I would just say that away from these five concerns, there is a big debate going on about valuations in market in Europe today versus historical levels. But that's a long conversation. That's probably for another clip.