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"We remain optimistic about the future of the stock market, especially with regard to major securities, which are going to generate the most money", said a blunt and optimistic Juan Carlos Ureta, Chairman of Renta 4, at the latest edition of Matins ESADE, sponsored by La Vanguardia y Ono. The basis of his argument was very clear: the world economy is experiencing excellent growth, liquidity is abundant, interest rates are low, there is no fear of inflation and central banks are behaving rationally. Corporate transactions take care of the rest. "Today, the cost of capital is lower than the expected yield of investments", said Mr. Ureta. However, he added that "the gap is narrowing as the cycle advances, but we still have a long way to go".

Mr. Ureta explained that the confluence of these factors would have been difficult to predict as recently as a year ago. "It is clear that we are facing a new kind of situation", he said. "Long-term interest rates are one point lower than they were in 2004, when the Federal Reserve began to raise them. Logically, all assets - stocks, real estate, art, etc. - have increased in value".

Mr. Ureta pointed out that the growth of international liquidity is due to three different factors: "The first factor can be seen in the large emerging countries, such as China and India, which are growing very quickly and generate major monetary income that cannot be recycled in their domestic economies. As a result, they are forced to export this income to the United States and Europe". The second factor was the upward trend in raw materials, which, he said, "is not over yet". The countries generating major income in this area, such as the OPEC nations, export the money because they, too, are unable to recycle it in their domestic economies. The third factor, according to Mr. Ureta, has to do with the ageing of the population in developed countries, which implies an increase in the savings rate.

"And how is it that none of this affects inflation?" asked Mr. Ureta. He cited three reasons: "The actions of central banks generate credibility; globalisation encourages the entrance of low-cost products (China) and inexpensive services (India); and the technological revolution has created the information society, which discourages price fixing by increasing transparency in all markets for products and services".

According to Mr. Ureta, long-term interest rates are the factor to watch. "After 17 short-term interest-rate hikes in the United States since 2004, long-term interest rates are half of a percentage point lower than they were before", he said. "We call this situation global financial stability. However, not only has the global productive economy changed, but also the financial economy. This has clearly had an effect on the value of assets and on the actions of companies".

He defended the fact that certain companies, especially Spanish firms, have engaged in financial leveraging over the past few years, saying: "It was the right time to change the structure of the balance. The market was asking for it". He expressed his approval of the debt incurred by companies such as Sacyr Vallehermoso, ACS and Colonial, saying they had made the "right" investments. "They were very ambitious: they took advantage of the new situation to change their models. All companies - both listed and unlisted - should have done the same".

Mr. Ureta said that those who see the end of the cycle in any market turbulence are mistaken. "We are certainly in the second phase of the upward cycle, and we have already seen turbulence twice this year", he said. "The situation is not as buoyant as it was in 2003 and 2004, but we've been through 14 quarters of growth and profits and four years of a bull market. But this is not over yet".

His reasons for holding such an optimistic viewpoint are based on the fact that the economy still has room to grow upwards, "as indicated by the predictions of international organisations, the financial stability we are now seeing, and the gradual and cautious actions of central banks". He gave some examples of price-to-earnings ratios for specific securities in order to demonstrate that they were not overpriced and that "there is no reason to talk of a bubble".

Mr. Ureta specified the level at which we should start to be concerned about long-term interest rates: "As long as they don't reach 5% in the United States and 4.5% in Europe, there's no need to worry". He did urge caution, however, "in the event that they do rise above these levels". They will continue to rise, he said, but "more moderately than in other cycles, so they should not cause problems in the securities markets". Nevertheless, Mr. Ureta cited one exception. Certain venture-capital funds, he said, "are pushing the limits of the possibilities offered by this situation". He predicted that those most exposed to risk might get a "scare".

Programme:
This edition of Matins ESADE, entitled 'A New Financial Scenario for Companies', will feature Juan Carlos Ureta, Chairman of RENTA 4.

Mr. Ureta holds a diploma in the legal/economic speciality (lawyer/economist) and a bachelor's degree in law from the University of Deusto (Bilbao). In 1978, he won the Spanish Ministry of Education's highest award for students finishing this degree nationwide, as well as the university's outstanding graduate award.

8.30 h Welcome
Pedro Navarro, vice-president of ESADE Alumni

Introduction:
Jesús Palau, Associate Professor of the Department of Financial Management and Control

Lecture: 'A New Financial Scenario for Companies'
Juan Carlos Ureta, president of RENTA 4

9.15 h Discussion

Moderator:
Jordi Goula, Economics Editor at La Vanguardia

10.00 h  Closing address
Pedro Navarro, vice-president of ESADE Alumni

Limited places

Date, time and venue:
Tuesday, 22th May 2007
8.30 am
Multipurpose room
ESADE Building 3
Av. Esplugues, 92-96
Barcelona

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