Monthly management comment
Macro & Politics: “Slowing growth in Europe and China / rising inflation”
The “commercial war” recently initiated by the US towards its European and Chinese commercial partners continued during the month of July. Trump strate-gy is so far rather successful with Juncker being sent to Washington in order to negotiate a compromise. The Chinese relationship is still complicated but it seems like the two partners will eventually decide to strike a deal instead of rising the stakes on the table. Trump knows that the US market is too large for exporters to snuff and is playing his cards well in order to take advantage of this situation.
He is also increasing the political pressure on governments and does not hesi-tate in implementing or threatening to implement sanctions on Iran, Russia and Turkey.
So far, the results talk for themselves: US GDP growth at its highest since 2Q 2014 at 4.1% and slowing growth in China and Europe.
Nevertheless, the current cycle continues to mature and a cocktail of slowing growth and rising inflation is looming potentially announcing a not too distant recession. The Fed should rise its rate by 0.25% in September and continue to raise once per quarter. The UK government also (surprisingly?) raised rates for the second time since 2008 on the back of rising inflation figures, trigger-ing fears of choking the economy. Rising rates is the usual suspect of futures recessions.
Markets: “Good earning season ”
82 % of S&P 500 companies reported quarterly results above consensus. These figures reassured once again most Equity investors with major US and European indexes up approx. 3% during the month of July and Eurostoxx 50 back in positive territory + 0.6% YTD. However, there were some differences between sectors and companies illustrated by Facebook and Tweeter plung-ing double digit figures when reporting less active users while Apple reached all-time highs on solid growth. Investors seem to be less complaisant towards the Tech sector. In the meantime, Bond yields rebounded on the back of rising CPI’s and political worries such as in Italy. The US 10-year Bond is now back to approx. 3%. Emerging markets are suffering from increasing rates and strengthening USD putting a toll on government budgets, bringing dark clouds on the outlook of countries such as Turkey, Mexico, Argentina or Venezuela.
Investment Themes & Favorite stocks: “CAF:US, Boliden, Zalando”
Aulien was up 1.5% in July (-0.9% ytd) and benefited of great earnings from Evolution Gaming (+27% on the month), Intuitive Surgical (+6% in July ) and strong performance of the Cliens Fokus Fund (+3.6 %).
Ali Baba and Tencent are lagging in the current unfavorable Chinese climate but we continue to foresee great potential in both companies and believe they will deliver strong figures in August 15th and 23rd (Buying opportunity). Siemens report was on the other hand quite uninspiring, we will probably look for an alternative stock within the energy sector.
Our favorite stocks and new ideas on our radar screen include Zalando (Buying opportunity after recent correction) / Securitas (Technical break out) / CAF Chinese ETF (Government steps in order to increase liquidity in the mar-ket) / Boliden (Very strong balance sheet, dividends to raise significantly).