And so we plow along, as the fly said to the ox – Henry Wadsworth Longfellow

And so we plow along, as the fly said to the ox – Henry Wadsworth Longfellow

Aulien S.C.A., SICAV – SIF Global Fund

Monthly management comment

Macro & Politics: “ Trade sanctions and strong USD are hurting markets and sentiment ”

The US government continues to entangle business partners and the world economy by continuously changing its stance and alternatively giving positive or negative signs. A trade agreement with Mexico gave some relief but sanc-tions on Turkey and Iran and continued tariff threats on China and the EU are keeping investors toes. Current US growth remains very solid (+4.1%) but seems to get closer to its peak as the latest employment figures indicated. These remain historically high but with limited wage pressures while inflation remains under control.

A rate hike was almost unanimously expected at this month Fed meeting but recent turmoil and forthcoming elections could perhaps trigger a surprise timeout this time around. This would probably do good to investors but above all reduce the pressure on the ever-rising USD. King USD is already running a very large favorable interest rate differential towards all other major curren-cies and puts its toll on most emerging currencies with Turkish Lira, Argentinian peso and the South African Rand dramatically wobbling.

The European economy cycle is also maturing but with a timid peak and with-out any kind normalization of its momentary policy. One can only wonder what tools the ECB could use in case of a sudden crisis.

Markets: “ The sole winner so far this year is the US Equity market. ”

Current environment remains very challenging for most investors. In the ab-sence of earning reports, negative psychology and fear have taken over sentiment. As of today (September 7th) all major European Equity markets a part from Sweden’s OMX show negative performance YTD. Eurostoxx 50 is down 5.9 % and was down 3.2% on August 31st. Bond performances are also feeble (Barclays Pan Eur Agg down 0.4% YTD) and face various perils (Emerging markets turmoil, rising Italian yields, deterioration of credit ratings). The Chinese market has particularly been hit in the last few months with the trade conflict and renewed signs of slowdown. The outperformance of the US markets is quite exceptional with the S&P 500 still up 7.6% YTD and the Nasdaq up 14.8%.

We feel the 20 % performance gap between the US and Europe is exagger-ated and the difference should reduce, hopefully by a European rebound and not a large US correction. Nevertheless, we remain worried by recent Tech weakness and will keep a very close eye on forthcoming company results.

Investment Themes & Favorite stocks: “ Leo Vegas, Tomra , Investor ”

Our August favorite picks (Chinese ETF -2.8%, Boliden -8.6% and Zalando – 7.6%) had a very poor month as China continued to falter and dragging along commodity markets. Zalando was also weak hurt by a current large correction in e-commerce stocks. Baba reported rather strong earnings on August 23rd with turnover figures up approx. 61%. Profitability was approx. 33% disappointing some analysts. We still feel that the company offers a unique growth opportunity.

We note huge disparities in stock performances and rising volatility which bodes for caution. Our current ideas include Leo Vegas (LEO:SS) a major mobile gaming provider; the stock seems to breakout after a strong correction. Tomra is a long term conviction, leader in plastic and can recycling but also in sorting different food products, useful in the future automated retail industry. Finally Investor(INVEB:SS) offers a great diversification in many leading Swe-dish industries but also potential from unquoted investments. Investor is current-ly trading at a high historical discount vs its intrinsic value.

Comments are closed.