1. With just a few weeks to go before the end of the year, global stock markets are about to close a very strong year. Is this pure speculation or are there fundamentals supporting this performance?

Bernard Aybran: Stock markets can move both for fundamental reasons or on a more “speculative” basis. What is usually described as “fundamental reasons” for markets to perform is mostly based on the corporate earnings growth. So far this year, on average, the companies listed worldwide have grown their earnings are are still expected to grow them for the next few quarters. Hence, there is a fundamental reason why markets are higher today than they were at the beginning of the year.

On top of this, there is also a “speculative” basis for the market performance this year: while the companies listed worldide grew their earnings by more than 6% year to date, the stock prices increased by more than 15%. In other words, investors are now ready to pay more for every dollar or euro of earnings than they were entering the year. This behaviour is mainly based on good perspective for the future earnings.

2. While major stock markets were already on a good trend before November, the US elections boosted them some more. Should it change the portfolio positionning?

BA: Portfolio turnover is, in many cases, detrimental to the performance as it means transaction costs and it increases the risk of buying high and selling low, often driven by emotions.

Still, when needed, and after a thorough review of the investment rationale, it sometimes makes sense to re-position the portfolios when market conditions change. And it’s likely the outcome of the latest US elections did change meaningfully the investment landscape. Even more than before, US stocks are expected to enjoy stronger tailwinds than their foreign counterparts. Outside the US equity markets, it’s likely the future economic policy will bring inflationary pressures back on the table in the United States, hence pushing long term interest rates higher while stopping the rate cuts by the Federal Reserve.

3. Over this backdrop, should European investors focus solely on US-listed stocks or is there still a point diversifying their investments?

BA: Stock markets have been highly polarised over the past few years, with just a handful of stocks making up for the majority of the total market performance. US-listed stocks have been leading for years now and their outperformance has been growing up to extreme levels this year. Still, from a pure risk-return standpoint, it is sensible to diversify portfolios, not only on a regional basis but also on different asset classes: there is value to be found in fixed income and commodities, when carefuly selected. Besides, private assets can bring a meaningful value added to a portfolio of liquid, listed securities. The weight of each asset class has to be consistent with each investor profile, knowledge and risk apetite.

In this context, it makes plenty of sense to seek advice from an investment professional.