The Belgium market should have a good 1998 with the country entering “a phase of low interest rates, low inflation pressures and with a risk premium at a good level”, says Alain Contreras, manager of the Brussels-based Bfr5bn ($133m) Solvay pension fund.
Contreras also believes that external factors may help the market. “In my opinion, if the crisis in Asia is brought under control then the market should rebound very vigorously,” he says.
The bond market is clearly linked to this benign assessment. “I anticipate the long-term rate could decrease and reach 5% or even a little below. So it will have a positive effect on bonds.”
Turning to the market drivers, Contreras sees the continuation of a theme seen throughout Europe: restructuring. “Restructuring will continue especially in the financial sector but also in chemicals and pharmaceuticals.”He also expects a continued improvement in company managers’ attitudes to shareholders’ interests. “More companies are envisaging a share buyback programme and this will have a positive effect on the market.”
In terms of risks he says that – before the Asian turmoil – the major risk was that growth would be too strong, leading to interest rate hikes. “I think this risk has disappeared. The main risk is a spreading of the turmoil in Asia, bringing a negative impact on growth and on the profits of the companies.”
Despite such optimism, his sectoral analysis includes a note of caution. “For 1998 we favour defensive sectors such as pharmaceuticals, financials and maybe the food industry, electricity production, water treatment and communications.”
As yet, he does not favour the cyclicals. “It is probably too early to invest in these.” He is looking for a revival in some sectors that have fared badly in recent years.
“At some stage we will have to take interest in sectors which have had a very poor performance in 1997, such as luxury goods companies. Many investors are reluctant to go into that kind of sector but these companies could rebound vigorously if the Asian situation improves.” John Lappin