Written by: Global Thought Leadership | December 01, 2017
Source: Bloomberg, 11/29/17. Past performance is no guarantee of future results. Indexes are un-managed, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.
The chart shows the year-on-year growth of lending to non-financial corporations and households, as measured by the European Central Bank, from September 2012 to September 2017, the most recent figures available.
The Bottom Line
One reliable way to measure near-term optimism: watch how businesses and households approach investing in their future.
In recessions, both tend to hoard cash to help weather difficult times ahead. Sadly, their reluctance to spend can worsen a downturn, contributing to a vicious cycle of slowing consumption and underinvestment.
Conversely, an uptick in spending and investment can transform a cycle from vicious to virtuous, as households imagine brighter futures ahead, and businesses position themselves to boost their own returns.
Implicit in that activity is the expectation of their investment rewards will more than offset the cost of borrowing – which is why recent figures from Europe about lending are good news.
Year-on-year growth in lending (roughly 2.5% for business and 1.5% for consumers) shows not only that banks are now willing, but borrowers are willing too.
In aggregate, this suggests that lending in the open market has now grown more appealing than lending to the European Central Bank’s secure ongoing quantitative easing program. That’s a clear sign of increased risk appetite among bankers – the kind of shift that can feed the virtuous circle of commerce, and in the process, help European companies to build their bottom line and cultivate the kind of share price growth seen in the U.S., further along on the arc of recovery.
The bottom line for investors: this is continued good news for the fundamentals of European companies, and is one reason – among many – that this category is deserving of investor attention and interest.
IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice. Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.
You are leaving www.leggmason.com and being directed to a new site.
This link leads to a website that is intended for U.S. investors only. The products and services described on the website are not available to non-U.S. investors. Non-U.S. investors should disregard this email. Legg Mason takes no liability for the onward transmission of this material. All investments involve risk, including possible loss of principal.
Investors should consider the fund's investment objectives, risks, charges and expenses carefully before investing. Find this and other information in each fund's prospectus or if available, summary prospectus on the product specific pages of this website. Read it carefully before investing.
An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
INVESTMENT PRODUCTS: NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
DID YOU KNOW THAT YOUR INTERNET BROWSER IS OUT OF DATE?
Your browser is out of date and may not be compatible with our website. A list of the most popular web browsers can be found below.
Note: If you are seeing this pop up in Internet Explorer and are running version 8 or higher, please go into Tools (ALT+T), and then to Compatibility View Settings and make sure "Display Intranet Sites in Compatibility View" is not checked.