AI makes sense of Euro area woes

Market Updates

Written by Tui Eruera, CEO and Founder of Jaaims

Published 17th October 2022

The European economy remains fragile as Credit Default Swaps once again raise their ugly head – but Jaaims has been on the case for several months.

Fears of a recession in Europe are making headlines at present – and with good reason. 

We’ve seen the market value of Swiss banking giant Credit Suisse plunge 60% over the last year amid concerns about huge exposure to credit default swaps. 

Another goliath of the European banking scene – Deutsche Bank, isn’t far behind. Its share value has fallen 22% over the same period.

Part of the concern lies in the tremendous amount of debt Euro banks are carrying. Back in 2018, Europe’s major banks were collectively leveraged to the tune of €300 billion. Today that figure is closer to €500 billion.

What’s interesting is that an index of European banks shares has fallen 22% since the start of the year, leaving it trading at a 40% discount to the value of the banks’ assets, indicating that investors are still not buying in, despite the discount – and the fact that bad news is already priced in. 

But the issue goes beyond the banks. 

In the last month we’ve seen chaos in the UK as British PM Liz Truss announced an extraordinary about-face on tax cuts. It came after the UK central bank was forced to step in to salvage a nose-diving Pound.  

For seasoned investors it can all sound very reminiscent of the lead up to the global financial crisis. 

Regulators clearly think so, with some watchdogs warning we could see a repeat of the mistakes that led to the financial rout more than a decade ago.

The situation isn’t being helped by Russia’s invasion of Ukraine, a deepening energy crisis, rising inflation and a worsening economic outlook in the Euro area, all of which are compounding the pressure on banks in the region.

Of course as humans, it is extremely challenging to be across all of these events – and make sense of how they are playing out in stock markets.

Fortunately, we don’t have to.

Behind the scenes Jaaims has been analysing the mountain of data coming out of Europe. And the algorithm has made some clear decisions.

Over the last six months Jaaims has exited all of its positions in the German DAX, and currently has very limited exposure to the UK market – mostly in energy stocks such as BP, where it is continuing to make gains.

At times like the present when we are bombarded by rapidly changing headlines – many of which can be a source of concern, it’s good to know that Jaaims has your back.

*Any advice provided is general in nature and does not take into account the viewer’s specific needs and circumstances. You should consider your own financial position, objectives and requirements to determine the type of advice and products to best suit your needs. Jaaims Australia is an Authorised Representative of Jaaims Technologies, AFSL 519985.

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