NEWSLETTER of September 22, 2023

The following content has been added at finexpert:

Allianz Research
IS DIVERSIFICATION DEAD?
60/40: It's not over until it's over. 2022 flipped the script on the traditional 60/40 portfolio split, with inflation and growth dynamics switching the traditionally negative correlation between equities and bonds into a positive one. But we do not expect this to last: With inflation levels likely to stabilize in the mid-run, inflation expectations remaining anchored by the still strong credibility of central banks and economic shocks expected to remain demand-driven, stock-bond correlations should return to negative territory, promising positive diversification effects. Looking beyond stocks and bonds, private assets also offer a diversification benefit due to the long-term capital commitment – but only if held to maturity. Ultimately, they are also exposed to similar fundamental economic dynamics as their traded counterparts. >more

KfW Research
LEASING IM MITTELSTAND – KEIN ALLROUNDER, ABER EIN INSTRUMENT MIT POTENZIAL
Leasing is an established procurement instrument among SMEs. This is shown for the first time by representative figures from the KfW SME Panel on the use of leasing by small and medium-sized enterprises (SMEs). Most recently, more than one in five SMEs in Germany used leasing to acquire fixed assets. However, the use of leasing by SMEs is dominated by car leasing. Around 80% of SMEs that concluded leasing agreements in 2021 or 2022 did so to purchase passenger cars. A direct comparison with traditional investment (purchase) also highlights the continued subordinate importance of leasing in the procurement of fixed assets. Nevertheless, leasing has the potential to make an important contribution to the dual transformation of the economy. Leasing is a suitable (financing) alternative for investment projects in the areas of digitization and climate neutrality. >more

IWH
IWH-INSOLVENZTREND: ETWAS WENIGER FIRMENPLEITEN IM AUGUST, IM NÄCHSTEN QUARTAL WOHL DEUTLICH MEHR
The number of insolvencies among partnerships and corporations in August was again above the pre-Corona pandemic level, but fell slightly for the second month in succession. Rising insolvency figures are likely for the fourth quarter. Much faster than official statistics, the IWH Insolvency Trend of the Leibniz Institute for Economic Research in Halle (IWH) provides a reliable finding on the nationwide insolvency situation for partnerships and corporations every month. The results show only minor deviations from the official figures, which allow a comprehensive assessment of the situation with a time lag of around two months. The IWH insolvency trend is therefore a reliable leading indicator. >more

Allianz Research
GERMANY NEEDS MORE THAN A PLAN
Germany is the only major economy that looks set to contract in 2023, with headwinds such as slowing demand for its exports (particularly highly cyclical goods such as cars, machine tools and chemicals), lopsided global growth in services over goods, the industry slowdown in the US and China and an inventory correction. Even if the government's economic plan is a step in the right direction, and will give growth a small boost, it is too small to restructure a EUR4trn economy. Germany struggles with structural challenges, including labor shortages, high energy costs, elevated regulatory and tax burdens, slow digitization and policy uncertainty. To address these, Germany needs measures that strengthen its position as a place to innovate, invest and create high-value jobs. While the government must create favorable conditions, companies also need to take countermeasures and actively implement the green and digital transition. >more

DIVERSITY WASHING
Andrew Baker, David F. Larcker, Charles McClure, Durgesh Saraph, and Edward M. Watts
2023
We provide large-sample evidence on whether U.S. publicly traded corporations use voluntary disclosures about their commitments to employee diversity opportunistically. We document significant discrepancies between companies' external stances on diversity, equity, and inclusion (DEI) and their hiring practices. Firms that discuss DEI more than their actual employee gender and racial diversity (“diversity washers”) obtain superior scores from environmental, social, and governance (ESG) rating organizations and attract more investment from institutional investors with an ESG focus. These outcomes occur even though diversity-washing firms are more likely to incur discrimination violations and have negative human-capital-related news events. Our study provides evidence consistent with growing allegations of misleading statements from firms about their DEI initiatives and highlights the potential consequences of selective ESG disclosures. >more

THE DEBT-INFLATION CHANNEL OF THE GERMAN HYPERINFLATION
Markus K. Brunnermeier, Sergio Correia, Stephan Luck, Emil Verner, and Tom Zimmermann
2023
This paper studies how a large increase in the price level is transmitted to the real economy through firm balance sheets. Using newly digitized macro- and micro-level data from the German inflation of 1919-1923, we show that inflation led to a large reduction in real debt burdens and bankruptcies. Firms with higher nominal liabilities at the onset of inflation experienced a larger decline in interest expenses, a relative increase in their equity values, and higher employment during the inflation. The results are consistent with real effects of a debt-inflation channel that operates even when prices and wages are flexible. >more