Is a euro crisis waiting ahead?

BNR Nieuwsradio
Erasmus School of Economics

Mary Pieterse-Bloem, Professor of Financial Markets at Erasmus School of Economics and Global Head Fixed Income at the Global Investment Center of the Private Bank of ABN AMRO, is one of the panel members of the BNR Nieuwsradio beleggerspanel. Topics of discussion are the Risk Reporting Financial Markets of the Netherlands Bureau for Economic Policy Analysis (CPB), volatility on the stock exchanges and an extremely fast IPO of Douwe Egberts.

Risk Report of the Netherlands Bureau for Economic Policy Analysis

A new euro crisis lays ahead if the coronavirus leads to a prolonged recession. In this scenario, the debts of companies, banks and governments run over, becoming uncontrollable. That is the conclusion of the CPB in their Risk Report Financial Markets. According to Mary Pieterse-Bloem, the CPB mainly points to the tension between the increasing debts of various parties. Particularly in the case of governments, which take on debts in order to be able to finance the support packages for companies, the debt quotas increase enormously. The European Central Bank, in its turn, is buying up all these debts, which means that the risk premiums are falling. It is justified that CBP points to this field of tension, Pieterse-Bloem says.

The Risk Report addresses that at this point the companies are coping with the consequences and more support is needed in the long term or else they won't make it. Providing such support will put government finances in trouble. As investors, we will have to let the scenario continue and see whether there is still sufficient reward for the risk you have in your portfolio, Pieterse-Bloem argues. It should also be noted that, mainly on the bond side, many investors structure their portfolios on the basis of so-called benchmark indexes. When debt quotas increase, the share of such a country in the indices also increases, resulting in a natural movement of investors towards the national debt of such countries, Pieterse-Bloem concludes.

Volatility on the stock markets

Although the equity markets are claimed to be calmer again, a lot of turmoil is still going on in the background. According to Mary Pieterse-Bloem the opinions are very divided. Some analysts argue that the worst part is over, on the other hand there are calls to be careful. According to Pieterse-Bloem, the recovery and reopening of the economy are going very slowly and a second wave of contagion may be lurking. In addition, the volatility is broader than just the stock market. The oil price, for example, goes up and down sharply, influencing all the shares involved.

The IPO of JDE Peet's

JDE Peet's, including the Dutch firm Douwe Egberts, can be found at the stock exchange again. Mary Pieterse-Bloem is pleased from a private point of view to see the share back on the AEX and is glad to read positive news about markets again. It is very important that you visit the major investment houses one-on-one in advance when it comes to shares. All this has now been done successfully online using a digital roadshow. Pieterse-Bloem expects that when there is more freedom of movement again, the roadshows wont remain fully digital, but that an online offline combination will certainly be used. According to her, a new trend is set.

Professor
More information

Listen to the entire broadcast of BNR Nieuwsradio here, 2 June 2020 (in Dutch).