Short assessment

On the plus side, we have a calming inflation picture, predominantly solid corporate balance sheets and growing real purchasing power in large parts of the industrialised nations. It also looks as if the economy in both Europe and the USA will avoid a recession. The capital markets are currently reflecting a soft landing. The latest retail sales figures impressively confirm the strength of US consumption. Average job growth has also been surprisingly strong. In the last three months, it totalled 249,000 - well above the pre-pandemic average and well above the 200,000 mark. Furthermore, stock market valuations are not excessive by conventional standards - compared to the turn of the millennium, for example.

There are a number of items on the debit side that should not be underestimated. Firstly, the diverging growth prospects: Europe is slowly recovering from a low level, whereas the USA may still be facing its weakest months. China, on the other hand, still appears to be dependent on government support measures in order to achieve its growth target of five per cent. Secondly, the continuing high geopolitical risks - Russia's war of aggression against Ukraine and the smouldering trade conflict between the US and China. Thirdly, the uncertainty emanating from the upcoming US presidential election.

Falling Inflation

The trend in inflation rates in the USA and Europe is likely to continue to point downwards, thanks to the central banks' ongoing restrictive monetary policy. In the eurozone, inflation rates fell mainly due to lower energy prices. In Japan, the inflation rate is also likely to weaken, but will remain well above the one per cent mark in the coming year.

As expected, the European Central Bank lowered its key interest rates by 0.25 percentage points at its meeting in June, heralding the start of the round of interest rate cuts ahead of the US Federal Reserve. In the US, the Fed could start cutting interest rates for the first time in September 2024, provided that the data on inflation, the labour market and economic growth allow it to do so. Most recently, US inflation fell slightly: the US Bureau of Labor Statistics reported 3.3 per cent year-on-year inflation - economists had expected 3.4 per cent in the mail. The meaningful core rate excluding energy and food also fell in May - by 0.2 per cent to 3.4 per cent inflation in a 12-month comparison.

Positive reporting season

The reporting season in the US was positive, but it remains a two-speed market as the large technology-related companies showed the biggest jumps in profits. This had an impact on the stock market. Technology stocks were the big performance driver and there are good reasons why this could continue in the future.

According to our forecast, earnings growth for technology stocks, as measured by the MSCI World Information Technology Index, will be more than 20 per cent in 2025, which is likely to be significantly higher than the market as a whole. It is also becoming apparent that the topic of artificial intelligence will boost significantly more companies in the future. So far, performance and earnings growth have been driven by a small number of companies. From the second half of the year, we expect positive earnings revisions across the board. We are seeing more and more technology companies benefiting from increasing investment in artificial intelligence. In addition, there is a recovery in the cyclical areas of the technology sector, such as personal computers, memory chips and analogue semiconductors.

intelligence

AI remains the dominant topic, and this will not change any time soon. It is a cross-sectional technology that will permanently change our economy and society in the coming decades, much like the printing press or the steam engine did. Companies are currently launching numerous projects to improve their products or make processes more efficient using AI.

At the moment, many of these applications are still in a pilot phase. In the coming quarters, however, we will probably see more and more implementations in practice. We are only at the beginning of a multi-year investment cycle in AI infrastructure. The investments in AI infrastructure by the big tech companies are a positive driver for a whole range of companies.

The most important components for such "AI factories" are semiconductors and network technology, which make it possible to train AI models with more and more data in less and less time. As production capacities are in short supply due to the strong demand for such chips, the entire value chain benefits - right down to the manufacturers of the machines required for semiconductor production. All of these points mean that the risk/reward ratio of technology shares remains attractive.

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The most important components for such "AI factories" are semiconductors and network technology, which make it possible to train AI models with more and more data in less and less time. As production capacities are in short supply due to the strong demand for such chips, the entire value chain benefits - right down to the manufacturers of the machines required for semiconductor production. All of these points mean that the risk/reward ratio of technology shares remains attractive.

In Europe, we have overweighted Germany. The growth figures for the German economy have recently been revised slightly upwards. The latest ifo figures on the business outlook, which have risen for the third time in a row, also painted a slightly positive picture. The Dax is still trading at an above-average valuation discount compared to the US S&P 500 index, but we see opportunities for this discount to narrow in the foreseeable future.

Emerging market equities have been in the red this year in terms of performance. The MSCI Emerging Markets is only slightly up. Elections and relatively inexperienced governments are a risk factor in some countries. Even though we find some markets in Asia interesting, we are only neutral on emerging markets.

As we remain positive for equities in the medium term, we recommend adding to existing positions on weak days.

On our own behalf: Our two R&B equity funds performed above average. This was also confirmed externally. In May 2024, the world's most respected fund rating "Lipper Leaders Rating" awarded the R&B Aktien Global Aktiv fund the highest rating in all three performance categories "Total Return", "Consistent Return" and "Preservation" in the period since the fund was launched. This makes our global equity fund one of the best equity funds in Austria and Germany.