Fourth-quarter statistics show that disinflation is continuing in the main economic zones. In the United States, inflation stood at 3.4% in December, compared with 3.7% at the end of September. In Europe, inflation fell from 4.3% to 2.9% over the same period. These figures are indeed reassuring; they validate the markets' hopes for a rapid return of inflation towards the 2% target set by central bankers in order to be in a position to lower their key rates in 2024.
This expectation of easing monetary pressure had an impact on financial markets. On the bond markets, interest rates eased significantly over the quarter, with the US 10-year rate closing the year at 3.87%, down 70 bps. At the same time, the German 10-year was down 80 bps at 2%.
The main equity indices rebounded strongly over the last quarter, by around 10%, enabling us to close the year with gains of around 15-20%.
This optimistic view of the markets seems to us to be a risky gamble.
After some very substantial rate hikes in recent months (+525 bps in the USA and +450 bps in the eurozone), it seems plausible that we are nearing the end of this rate hike cycle; however, it is probably rather premature to anticipate any major easing of monetary policy in the short term. Although inflation has fallen sharply in recent months, core inflation, i.e. inflation excluding the most volatile items such as energy, remains too high: 4.0% in the USA and 3.6% in the Eurozone. This "core" inflation is fuelled in particular by household consumption, which is benefiting from a job market that remains robust. We are therefore not completely convinced of a rapid easing of monetary conditions. What's more, we believe that the risk of recession is very high, particularly in Europe.
These doubts about the realization of the ideal scenario played out by the markets lead us to apply cautious strategies to our asset allocations and choice of securities.
Launch of a new fund
In mid-December, we launched a new US equity fund with at least 70% US equities in discounted stocks. We will take advantage of bearish exaggerations and undervaluations to enter US and foreign stocks at a good price. The fund's stock-picking strategy focuses on sectors that have been mistreated or misunderstood by investors, who are often out of step with growth stocks buoyed by low interest rates. Sectors such as energy, healthcare and telecoms will account for a significant proportion of the fund's investments.
Performance of our funds in 2023
MW Actions Europe +19%,
MW Obligations Internationales: +6.7%.
MW Patrimoine: +6.5%.