Accuracy Talks Straight #7
For our seventh edition of Accuracy Talks Straight, Delphine Sztermer and Nicolas Bourdon presents the editorial, before letting René Pigot introduce us to Naarea, a startup which aims to design and develop fourth-generation low power molten salt reactors. We will then analyse 5G in Europe with Ignacio Lliso and Alberto Valle.
Sophie Chassat, Philosopher and partner at Wemean, will talk about superstructures. Then, we will use the example of motorway concessions to evaluate the risk in business with Bruno Husson, Honorary partner. Finally, we will focus on 2023 with Hervé Goulletquer, our senior economic adviser.
SUMMARY
01. Editorial
Delphine Sztermer
Partner,
Accuracy
Nicolas Bourdon
Partner,
Accuracy
BACK TO THE FUTURE… OF INFRASTRUCTURE
In his 1977 novel The Gasp, Romain Gary already raises the issue of access to a cleaner source of energy. Gary imagines nothing less than recovering the souls of the deceased as fuel for machines, leaving humanity faced with the question of what it is willing to accept morally to pursue its growth and maintain its lifestyle. And Gary concludes: ‘The paradox of science is that there is only one response to these misdeeds and perils; even more science.’
Driven by the broad awareness of environmental challenges, the world of infrastructure is experiencing multiple revolutions and now finds itself in the spotlight on both the political and economic stages. From being the poor relation in terms of investment 25 years ago, infrastructure is now the focus of many expectations.
We see three major challenges to be met:
• The speed of deployment of a realistic decarbonised energy mix, adapted to local constraints, in which nuclear plays an important role as a primary source where geographically possible. The myriad new promising projects, covering the whole value chain from production to storage and distribution, will find specialised funds revising their investment scopes. Cooperation between political decision-makers and public and private actors will also be a determining factor to accelerate decarbonisation.
• The adaptation of distribution networks (hydrogen and electric) must go hand-in-hand with the adaptation (conversion) or the production of rolling stock in the automotive, railway and later aeronautical industries. Manufacturers and network managers must better cooperate to avoid the mutual wait-and-see attitudes that delay the deployment of solutions.
• The volume of projects necessary and the cash piles available mean that lenders need to rethink their financing execution processes to make them faster and smoother.
We have not forgotten the importance of waste treatment, water treatment and telecommunication networks. These critical sectors are facing their own technological challenges, but they are highly dependent on the quality of energies that they can consume or on the transport networks made available to them.
The world of infrastructure has never needed innovation more!
René Pigot
Partner, Accuracy
NAAREA
In light of the energy crisis and sovereignty challenges that have recently emerged, nuclear power is again the subject of much interest as a form of low-carbon energy. But what will be the nuclear energy of tomorrow? Next to conventional nuclear power, which remains the prerogative of governments and government-assisted bodies, numerous privately financed start-ups have begun operations in the last few years in this industry, like NAAREA (an acronym of Nano Abundant Affordable Resourceful Energy for All).
Through its XS(A)MR (extra-small advanced modular reactor) project, NAAREA aims to design and develop fourth-generation low power molten salt reactors (< 50 MW).
There are multiple advantages to this technology – initially developed in the 1950s and 1960s – according to the two founders, Jean-Luc Alexandre and Ivan Gavriloff. First, this type of reactor, which works by dissolving the nuclear fuel in salt melted at a high temperature (700°C), is safer thanks to the fission regulation systems made possible as a result of its smaller size. Further, there is no drain on natural resources because the reactor uses fuel from existing reserves of nuclear waste and thorium (the concept of waste-to-energy), thus limiting any dependence on uranium suppliers. In addition, the waste resulting from the process is very limited, reducing the risk of dispersal and issues linked to storage. But the main advantage of this innovation, and also what differentiates it from other major projects in the US or China, lies in its very small size. With a highly compact volume, not far from the size of a shipping container, the reactor can be deployed in an independent and decentralised way, making it possible to be closer to industrial consumers, without needing to reinforce current distribution networks or access to water. Ultimately, this type of reactor should ensure a more affordable energy price than that resulting from fossil fuels and renewable energy for an autonomy of up to 10 years.
NAAREA’s objective is to produce and operate directly its micro power plants in large quantities and to sell the energy produced to industrials. This positioning as a service provider is much more engaging and therefore reassuring for nuclear safety authorities, as it avoids the proliferation of nuclear operators. Here again, it differs from the numerous other competing projects that hope to provide the solution.
In exchange, this project requires significant investment. Today, the start-up has already raised tens of millions of euros from family offices and has built partnerships with major industry players: the CEA, the CNRS, Framatome, Orano, Dassault Systèmes, Assystem. Indeed, with Assystem, it is in the process of producing the digital twin of its reactor, scheduled for summer 2023. Participating notably in the ‘Réacteurs nucléaires innovants’ call for projects as part of the ‘France 2030’ investment plan, NAAREA hopes to raise hundreds of millions of euros more to be able to build its prototype by 2027 and its first unit by 2029.
Ignacio Lliso
Partner,
Accuracy
Alberto Valle
Director,
Accuracy
5G in Europe: a bumpy road ahead
In 2019, Europe proclaimed the advent of 5G, a new communication technology that would disrupt the way businesses and individuals interact with each other. Four years later, the deployment of the necessary infrastructure is far from complete, and companies at the forefront of its development appear to be taking things easy. Why? Because return on investment is unclear.
However, some experts see signs indicating that the current landscape is about to shift. New types of companies, born from new technologies such as augmented reality, autonomous devices or remote working, are demanding more data at faster rates and with new functionalities.
This gives rise to some questions: what is the enabler that could accelerate 5G penetration? Who will benefit most from 5G? How will investors recover their investment?
1. Are we facing the true shifting point for 5G adoption?
Ericsson estimates a significant increase in 5G subscriptions from now until 2028, driven by the availability of devices from several vendors, the reduction of prices and the early deployment of 5G in China. This massive worldwide adoption will lead to:
(i) an increase in the number of users to five billion (80% of traffic as video);
(ii) a more balanced distribution of users across continents;
(iii) mobile traffic data increasing from 15 EB per month to 225 EB per month worldwide.
Figure 1 – 5G penetration rate by region
Figure 2 – Breakdown of 5G subscription by regions
Figure 3 – 5G mobile traffic data worldwide
This shift must be fuelled by the many advantages of 5G over 4G, which rely on the increased upload/download speed – up to 1 GB per second – its spectrum, capacity and latency.
Table 1 – Overview of 5G characteristics vs 3G and 4G
Another advantage lies in its energy efficiency; figures prove that 5G technology consumes only 10% of the power used by 4G.
Further advantages include (i) reduced interference, (ii) improved security and (iii) connection to newly developed products.
2. What is impeding the deployment of its infrastructure in Europe?
It is difficult to provide an accurate and up-to-date number of base stations currently in operation in Europe because the deployment of 5G networks is ongoing and varies significantly country to country.
Table 2 – 5G Band types and characteristics
Several external factors have impeded a robust deployment, factors that can be segmented into two categories.
Business factors:
• The unclear monetisation strategy for network developers, with no concrete business case providing a sufficient return.
• A weaker tech ecosystem pushing for an accelerated adoption of 5G to serve their needs (e.g. immersive technologies).
• Challenging access to hardware, particularlysincethe US government blocked global chip supply to the blacklisted telecommunications giant Huawei.
• The slow replacement of old generation devices.
Political and administrative factors:
• The highly fragmented European market,with hundreds of operators – in the US or China, there are three large operators with the critical mass to invest.
• Higher European administrative and bureaucratic hurdles to network providers.
• A lack of process standardisation – operators struggle to find deployment synergies due to the high level of competition in each local market.
• A weaker political push versus Asia where technologies are leveraged to monitor and control populations.
3. What is Europe doing to overcome these challenges?
The deployment of 5G in the EU is developing heterogeneously across its members. By the end of 2020, 23 member states had activated commercial 5G services and met the goal of having at least one major city with 5G accessibility. Nevertheless, not all national 5G broadband plans include references to the EU’s 2025 and 2030 ambitions.
Figure 5 – 5G roll-out in Europe
The European Commission has estimated that 44% of all mobile connections in Europe will be under 5G in three years. This objective has led the Commission to put in place many initiatives to accelerate the roll-out of 5G in Europe, proactively searching for solutions and working to enhance deployment. These initiatives have contributed to the fact that by the end of 2021, the EU had installed more than 250k 5G base stations, covering 70% of its population. However, this coverage lacks much of the functionality and data transfer speed attributed to the new technology.
4. Is 5G a lucrative business?
The primary issue for operators is how to recover their investment. The way in which operators monetise their services is expected to change from their traditional business models; hence, monetisation strategies and 5G roll-out business cases will need to be revisited.
For example, the investment required to upgrade existing networks to 5G networks will amount to c. €5 billion in Spain alone, plus an additional €2 billion estimated by the Spanish government to drive the roll-out of 5G between 2021 and 2025. A total amount, therefore, of €7 billion.
Operators are aware of the inevitable increase in operating and capital expenditure. However, there is no clear path to making the investment profitable. For operating expenses, the collaboration of neutral infrastructure operators is crucial, as they represent (i) enablers of a traditional 5G deployment, (ii) the perfect partners for the scenario of large data consumption and ultra-high speed rates and (iii) an essential resource to make these investments less prohibitive for operators. For capital expenditure, operators are experimenting with different options to seek a return throughout the value chain, some of which take them far from their comfort zones. For example, Telefonica is studying the monetisation using APIs, which enables users to pay for different configurations of speed, latency and service quality,
In addition, network operators are looking for alternatives through partnerships with new technology providers to:
• better understand each other’s needs and capabilities;
• allow manufacturers to improve efficiency;
• avoid commoditisation and provide high value-added services around SaaS, PaaS or NaaS;
• better share earnings from these new services.
5. Who might be the “winners” of a successful 5G deployment?
Figure 6 – 5G value chain and its main players
While network operators are struggling to find a way to monetise their investments, other players are poised to extract value from the deployment of 5G:
• Tower/infrastructure providers – the construction of a large number of towers and base stations may be necessary in certain regions. However, the costs of dismantling obsolete infrastructure should also be considered.
• OTTs and other service providers –suppliers of autonomous driving, smart cities, Industry 4.0, telehealth, smart farming or entertainment, for example.
• Equipment providers – component and module suppliers, machinery and industrial automation companies and manufacturing companies for visual quality checks.
6. Conclusion
Tower constructors and network operators are heading towards a new era of communications, but the challenges they are facing are significant. The current low level of demand is impeding the adoption of this new technology, and some investors feel it does not justify the huge investment.
Meanwhile, technology costs have increased in what has become a global competition for hardware and chips. European players face fierce and imbalanced competition from Chinese and US operators that benefit from better equipment sourcing, more favourable administrative frameworks, higher economies of scale due to market consolidation and higher demand fostered by their dynamic tech ecosystems.
On the one hand, building infrastructure requires scale and long-term economic vision; on the other, technological disruption requires agility. Today, the European ecosystem has proved to be weak when faced with this paradox.
However, European institutions have started to realise the extent of this gap and have begun to show significant support for the technology. Nevertheless, this will not be enough for its deployment, and private operators must raise their game.
For 5G to become a reality in Europe, all stakeholders will have to collaborate, sharing their knowledge and future profits. This means designing, modelling and implementing major strategic alliances between European operators. This also means sharing investments and designing smart profit sharing with downstream tech ecosystem players benefitting from 5G expansion.
Sophie Chassat
Philosopher, Partner at Wemean
Disruptive superstructures
If technical and technological innovations require disruptive infrastructures, society will also need to equip itself with ‘disruptive superstructures’. What is a superstructure? It is the intangible equivalent of infrastructure, that is to say, the ideas of a society, its means of expressing itself (art, philosophy, morality) and its governmental institutions, as well as its cultural and educational institutions.
It was Karl Marx who invented this coupling of concepts to show their deep co-determination: a society’s ideological superstructures depend closely on its tangible and economic infrastructures – and vice versa. For example, the industrial revolution gave rise to developments in both infrastructure (technical innovations, mechanisation, division of labour, etc.) and superstructure (liberalism, rationalism, bourgeois morality, etc.), which reinforced each other.
What disruptive superstructures will we need to support the tangible and economic changes of our time? Though we know nothing for certain, what we do know is that our current superstructures are no longer appropriate. This is the starting point of an excellent TedX by Sir Ken Robinson on our educational systems: the paradigm on which they are based is still that of the industrial age.
Indeed, our educational system was conceived in the 19th century in the economic context of the industrial revolution. Logically, school is therefore organised to prepare pupils for this system of production: bells ringing, separate installations, specialised subjects, and standardised study programmes and tests. This is what Sir Ken Robinson calls ‘the factory model of education’.
The educational system inherited from the industrial age has one fault in particular: it kills creativity and divergent thought. And yet, this is something that our age, one of the most stimulating in history, needs now more than ever! That is why a radical change of paradigm in this area is essential, and it takes place in three steps. First, end the myth that there is a division between the academic and the non-academic, between the theoretical and the concrete; in other words, stop separating education from life. Second, recognise that most major learning is done collectively – because collaboration is the basis of progression – rather than encourage individual competition between pupils.
Third, change the thought patterns of those who work in the education system, as well as the architecture of the places where they work. The philosopher Michel Foucault already noted profound resonance between the spatial and temporal organisation of factories and schools. Inventive disruptive infrastructures will, in turn, have to match these new disruptive superstructures. What will the schools of tomorrow look like? Where will they be? Some, like Sugata Mitra in India, see them in the cloud; others see them in the middle of nature, like the forest schools that are flourishing in Europe. But why don’t we ask our children and young people what they think? Creativity is after all their area of expertise, no?
Bruno Husson
Honorary partner, Accuracy
Time and risk in the valuation of a business – The example of motorway concessions
The value of an asset can be easily approached by the prices observed on a market where comparable assets are exchanged. This is the analogical approach to valuation. An alternative solution consists of replicating in a valuation model the way in which the market forms these prices. This is the intrinsic approach to valuation and the founding principle of the discounted cash flow (DCF) method, the prominent method associated with this second approach.
The two key parameters of any financial valuation: time and risk
The starting point of the intrinsic approach to valuation is the definition of the concept of financial value. According to this concept, the value of an asset is based on the cash flows that the asset holder is likely to receive in the future. As these cash flows are spread over time and subject to risk, the valuation model must necessarily incorporate the behaviour of the investor with regard to two parameters: time and risk. Financial theory indicates how to incorporate time and risk in isolation, that is, how to incorporate time without consideration of risk and how to incorporate risk as part of a single-period model (i.e. without consideration of time).
When considering time, valuation models use the discounting technique, that is, the commonly accepted assumption that an individual has a preference for the present. On financial markets where we implicitly exchange time (i.e. a sum of money held today against a sum of money available at a later date) through the acquisition of securities considered risk-free (treasury bills or government bonds), an individual’s preference for the present is logically reflected by the existence of a positive interest rate. This risk-free interest rate crystallises a fundamental principle of finance: the time value of money (one euro today is not the equivalent of one euro tomorrow because the euro received today, deposited at the risk-free rate, will give more than one euro tomorrow). Based on this principle, the discounting technique makes it possible to aggregate cash flows (assumed to be risk-free) occurring at different dates, bringing them back to today’s date by means of the interest rate, and finally to determine the value of the asset associated with this series of cash flows.
When considering risk, the valuation model frequently used by valuers is the Capital Asset Pricing Model (CAPM). This model relies on segmenting risk into two components: (i) the specific risk (or diversifiable risk), which asset holders can eliminate by diversifying their portfolios, and (ii) the systematic risk (or undiversifiable risk), which even the investor whose portfolio is perfectly diversified must bear. According to the CAPM formula, the return required on a financial asset is equal to the risk-free interest rate plus a risk premium that depends only on systematic risk (the market does not remunerate the diversifiable risk). Thanks to CAPM, we know how to calculate the value of an asset generating a risky cash flow over a single period: it is the average cash flow (or ‘expected’ cash flow) discounted at the rate of return given by the formula. The two components of risk linked to the assets are taken into account: the specific risk through the calculation of the expected cash flow (i.e. in theory, the average of the expected cash flows in the various possible scenarios, weighted for the likelihood of occurrence of these scenarios), and the systematic risk via the discounting of the expected cash flow at a rate incorporating a risk premium.
However, in practice, it is necessary to take into account the point that the valuations might be for entities generating cash flows over several periods (or even in perpetuity). This leads valuers to step away from the theoretical context mentioned above to incorporate both the time and risk parameters in the same model (in other words, combining risk with time).
The usual way of integrating risk in the discount rate can lead to a significant underestimation of the entity being valued: the example of motorway concessions
The typical approach used by valuers to incorporate risk consists of transposing the CAPM into a multi-period framework. More concretely, the price of time and (systematic) risk are considered simultaneously over the lifetime of the entities being valued via the discounting of expected future cash flows at a single risk rate. This rate is equal to the risk-free interest rate increased by the (constant) risk premium from the CAPM formula.
The alternative approach incorporates successively (and not simultaneously) the time and risk parameters: first the risk parameter via the determination of the ‘certainty equivalent cash flows’ and second the time parameter via the discounting of these cash flows at the risk-free interest rate. The certainty equivalent cash flows incorporate the entirety of the risk and are therefore lower than the expected cash flows that only incorporate the diversifiable portion of risk.
The difficulty in the alternative approach lies in determining the adjustment coefficients to be applied to the expected cash flows in order to obtain the certainty equivalent cash flows. These coefficients can be estimated within the theoretical framework of the CAPM, but the calculation formula, which is rather convoluted, proves inapplicable in practice. It is also worth highlighting that, in the context of a business valuation, the valuer must first appreciate the level of optimism of the business plan, before even considering the risk integration mechanisms. If the valuer considers that the business plan represents the average scenario associated with the expected cash flows, he or she can then either discount these cash flows at the CAPM risk rate or determine the certainty equivalent cash flows and discount them at the risk-free interest rate. If the business plan appears rather conservative, or even pessimistic, the valuer cannot implement the usual approach without adjusting the business plan cash flows upwards; however, he or she can directly choose the alternative approach by considering that the business plan cash flows provide a reasonable estimation of the certainty equivalent cash flows.
The usual approach to integrate risk can be criticised because, by using the discounting technique to combine risk with time (though this technique is, in theory, only supposed to take into account the time value of money), it implicitly makes a significant assumption on the development of the systematic risk by assuming that this risk increases considerably with time. The alternative approach appears more solid because, by dealing separately with the issues related to the incorporation of time and risk, it does not make any assumption on the development of the risk. This allows all valuation cases to be handled rigorously and in particular the valuation of activities that benefit from good visibility over a long period (for example, infrastructure projects) and for which the assumption of a risk growing with time is particularly debatable.
By way of illustration, let us consider a motorway concession likely to generate on average an annual cash flow of €800m over a period of 30 years (inflation is assumed to be nil). Based on a (real) risk-free interest rate of 1.5%, an asset beta of 0.5 and a market risk premium of 5.5%, the rate of return given by the CAPM formula amounts to 4.25% and the value of the concession using the typical risk integration approach comes to €13,423m (value of annual cash flow of €800m discounted at 4.25%). Given the good visibility of the revenues, which despite a relatively fixed cost base grants the activity a low systematic risk (confirmed by the beta coefficient of 0.5), it seems reasonable to base the determination of the certainty equivalent cash flows on a constant abatement coefficient of 0.15. On this basis, the value of the concession using the alternative approach comes to €16,331m (value of the annual certainty equivalent cash flow of €680m discounted at the risk-free interest rate of 1.5%). The gap in the estimated values given by the two approaches amounts to around 22% and comes from the implicit assumptions made on the development of risk over time. With the alternative approach, the risk is assumed to be unchanging (the deduction on the expected cash flow for risk is 15% in any given year); with the usual approach the risk increases significantly with time (the deduction for risk thus grows from 10% in year 4 to 21%, 31%, 40% and 50% in years 9, 14, 19 and 26 respectively, i.e. a very significant increase that the risk profile of the activity cannot justify).
In conclusion, adopting the usual risk-integration approach to value activities that benefit from good visibility over a long duration is debatable and can lead to significant undervaluations.
Hervé Goulletquer
Senior Economic Adviser, Accuracy
2023: an emerging year?
Emerging markets and developing economies (EMDEs) have struggled through the succession of crises experienced over the past three years: health (Covid), geopolitical (the Russo-Ukrainian war, tensions in the South China Sea and growing Sino-American rivalry), economic (the return of inflation) and financial (the rise in interest rates and the dollar in a context of (primarily public) debt that calls for vigilance). Their growth, if we exclude China, declined more in 2020 than that of advanced economies, and the subsequent rebound was more modest. The gap will not be filled this year or next.
Monde : les économies les moins développées souffrent le plus
Investment in infrastructure in EMDEs seems to have particularly suffered from this rather unfavourable dynamic. If we believe the Global Infrastructure Hub (November 2022), investment in this area in 2021 grew by 8.3% in high-income countries and fell by 8.8% in their medium- or low-income equivalents. Indeed, in that year, 80% of infrastructure projects were implemented in developed economies. How can we then not intuit that the return to more confidence for growth prospects is a prerequisite to the recovery of infrastructure investment in the EMDEs!
One more thing before looking ahead: the multiplying effect of the change in financial conditions on the growth profile needs to be measured. The tightening of monetary policy by the main central banks makes financing EMDEs much more difficult. And this observation is all the more pertinent given that their credit rating is weak. According to the World Bank’s findings, bond issues for all countries concerned fell by USD 250 billion in 2022 (much more than during the crises scattered over the past 15 years!), whilst the differences in sovereign spreads increased by 1,740 basis points (17.4%) for low-rated, energy-importing countries.
According to the IMF, the economic growth of EMDEs is projected to stabilise at around 4% this year and next year too. With the aid of a magnifying glass, we might discern a very slight upward trend (respectively +4.0% and +4.2%, after +3.9% in 2022). But the cloud of uncertainty, at such a complex time for the global economy, doubtless overshadows the extent of this acceleration. Though the quantification proposed may seem enviable compared with the projected performance of advanced economies, it is somewhat lacklustre compared with past performances closer to 5.5%.
Où va la croissance de la zone émergente ?
How then should we understand what might appear like a reserve in the IMF’s assessment?
First, there is the nature of the rebound expected for the Chinese economy. The announced return to better fortunes represents good news for the rest of the world. Fine, but to what extent? To answer the question, we need to push a little further our understanding of the economic recovery over there. Its origin lies in the removal of restrictions placed on the movement of people. The direct beneficiaries will therefore be those people. As consumers, they will most likely favour services. This is what we were able to observe in Europe and the United States, after all. Moreover, it seems reasonable to prioritise the assumption of measured support through a proactive economic policy. Favouring the trio ‘consumption – services – limited support via economic policy’ ultimately means not following the typical pattern of a Chinese recovery. This time, it is the result of fiscal and monetary stimulus, debt and investment. This difference between today and yesterday makes it easy to see the limits to the benefit that other countries should derive from China’s announced improvement. A quick glance at the composition of China’s imports shows this. The proportion going to households is small.
Then, there is US monetary policy. Its calibration conditions both part of the movement of the interest rate curves across the world and the level of the dollar against numerous other currencies, does it not? Though it is possible to consider that the majority of the rise in the Federal Reserve’s base rate has been undertaken (it is now on average at 4.63%), two aspects should be detailed: where will the ceiling be for the current phase of rises and how long will it stay at that level? Faced with inflationary pressures that send no clear signals of slowdown and with a labour market that is still tight, we might want to answer higher and longer than the market consensus estimates. We must therefore conclude that the US interest rate environment, if it becomes less adverse than it was, will not be immediately conducive to the formation of beneficial financial and economic conditions for EMDEs.
Lastly, there is the ability of each emerging or developing country to relay, through its own monetary policy capacities, the initiatives taken by Washington. That depends on the economic and foreign exchange balances. The situation is quite variable from one economy to another. If we rely on the sample presented below, only a minority has a real downside potential other than marginal on its policy rate, as long as the US situation allows it.
A la recherche des marges de manoeuvre pour baisser les taux directeurs dans le monde émergent
And then, stepping away from the economy, but bearing in mind the implications that may appear in this area, how can we not be interested in the political developments to come!In this area, a certain number of topics should be closely monitored; some are already old and therefore well identified, whilst others have until now drawn less attention:
• China: risk of conflict with Taiwan, US economic sanctions, increase in youth unemployment and undersizing of the retirement system
• Brazil: risk of political instability following Lula’s election
• Saudi Arabia: rapprochement with Russia and strategy to reduce oil production, considered hostile by the United States
• Israel: risk of war with Iran and consequences of the arrival of the far-right to government
• Russia: continuation of the war in Ukraine
The electoral cycle, with in particular the presidential and/or parliamentary elections in Nigeria, Turkey, Argentina and Lebanon.
This multidimensional view leads to the conclusion that the auspices for 2023 do not appear particularly favourable for the economies of EMDEs. However, the capital markets are sending a much more optimistic message. Since last autumn, emerging zone bonds and equities have performed well compared with those of the developed world, especially the US. How can we explain this contrast?
In fact, the investors and market operators have gambled that the world economy, and particularly the US economy, will not fall into recession. Despite often low unemployment rates, the central banks will succeed in bringing inflation to levels more or less compatible with the defined targets, and without leading to a fall in activity for several quarters. In this context, the appetite for risk comes back and the emerging markets are taking advantage of it!
Des marchés obligatoires émergents qui reprennent des couleurs sur fond de taux longs américains mieux orientés
Retour à meilleure fortune des marchés actions émergents ?
On what side should we come down: the fundamental analysis or the view of the financial markets? It is very difficult to say! Let us simply remember that the bets for a soft landing of the economy are difficult to win, and doubtlessly even more so when the labour markets remain tight.