No alternative to equities

Stock markets have experienced a rapid recovery from last year’s corona lows. Since January alone, the US S&P 500 index, the German Dax and the European Stoxx 600 have advanced by more than 20 per cent. Although corporate profits have also risen sharply, equities are now relatively highly valued. Nonetheless, they continue to be more attractive than their alternatives:

Yields on fixed-income securities such as government bonds remain minimal. The ten-year German government bond continues to yield below zero. Other euro countries are offering somewhat more, and the US Treasury yield is even back at 1.5 per cent. Against the backdrop of rising inflation rates, however, real bond yields turn out to be negative and are likely to remain so for quite some time. The low yields are a reflection of high prices, of course, and additional bond price gains are unlikely as central banks slowly scale back their ultra-loose monetary policies. In conclusion, short-term bonds, with their limited risk, are suitable as a liquidity reserve, but not as an alternative to equities.

As inflation is rising, an investment in gold seems attractive. And yet the motto is: buyer beware! The precious metal seems to have a life of its own at the moment. In September, its price went down despite high inflation rates but since the beginning of November it has been rising again, although the ounce is still cheaper than a year ago. The strong dollar and the prospects of higher interest rates, particularly in the US, are weighing on the price. As a result, gold remains difficult to predict.

Investing in cryptocurrencies seems more interesting than gold for many investors at this time. Recently, Bitcoin, Dogecoin & Co. were the sources of many a fortune. The problem with this investment, however, starts already with its name: Bitcoin and others are by no means “currencies”. Price increases are largely based on the mere hope that they will become currencies one day. To date, cryptos remain not much more than a nice toy for traders, gamblers and private investors that includes incalculable risks and the threat of drastic regulation by authorities, up to and including bans as in China. “For professional investors, they remain off-limits for now”, Gerlinger explained. “Because if you are responsible for client money, you simply do not gamble.”

Well, if not gold, then perhaps concrete gold? In fact, real estate prices have been on the rise for a long time. This is not only due to low interest rates but also to a latent excess demand for housing. It is unlikely, though, that this basic constellation will last forever. Not only the pension systems, but also the real estate market is facing a demographic problem that immigration will not compensate for. “Aging, population decline: in the long run, this means an oversupply of houses and therefore falling prices”, Gerlinger pointed out. The outlook for office real estate is not rosy either: employers who want to retain their employees are offering them the option of working out of their home offices. Many companies are therefore already considering the downsizing of their rented office space.

Private equity, on the other hand, is very interesting, but something that is best left to the professionals. The market can be very confusing and non-transparent for private investors. A lack of liquidity can make it almost impossible or very expensive to exit the investment in the short term.

Instead of investing money, you may end up spending it. Especially in times of negative returns, savings are often more fun when you buy nice products to enjoy. “The benefit is great then”, says Gerlinger, “but the disadvantage is: the money is gone.”

In the current situation, equities thus remain attractive despite high valuations – on the one hand, because they protect against rising inflation and, on the other hand, because the investment alternatives are hardly promising at present.

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