Monthly management comment
Macro & Politics: “Europe facing trouble yet again”
Italy’s announcement of a wider deficit has triggered tensions with the European Commission as well as potential downgrades from rating agencies. Italian vs German 10 years yield spreads has widen to ap-prox. 280 basis points with Italian yields currently at 3.3% (up 50bp in a week). Simultaneously, European leaders scorned May’s Brexit pro-posals leaving very little time to achieve any kind of constructive agree-ment. The UK market is large enough for Europeans to better groom this relationship. In Sweden, recent elections have blocked any possible government creation as 18 % of the votes went to an “outcast” party. Apparently votes are not equal in today’s European democracy.
In the meantime, the Fed increased as expected its base rate to 2.25% and should further tighten to 2.5% in December. US macro continues to shine with historically low unemployment, high confidence and GDP growth still rock solid at approx. 4%.
Continued “trade war” with implementation of tariffs and taxes has so far not derailed current expansion but one need to keep a cautious eye on forthcoming figures. The US/Canada agreement reached recently stimulates hopes for further trade agreements going forward.
Markets: “Too early to run for shelter”
Most market were mainly flat for the month of September. The only exception was the Japanese Nikkei who roared more than 5% and seems to technically break out. Earning season will start in the coming days, and if this year’s strength persists, one should expect fuel for rise in Equity indices.
We expect good earnings and hopefully a possible catching up of the European markets that continue to vastly underperform the US markets. Concern remains in the feeble market breath (FANG’s still represent a very large portion of Nasdaq’s performance) and large differences between sectors. We foresee a rotation and reallocations to more de-fensive stocks as growth loses momentum. We recommend an overweight in healthcare and consumer staples.
Investment Themes & Favorite stocks: “Baba, Stora, Tomra”
Tomra is one of our favorite stocks both short and long term. They have gained more than 10% in recent days on the back of their capital event and a strong buy recommendation from Cheuvreux. Recycling is a major investment theme, buy Tomra on any dips.
We also like Stora, the large forest company that also contributes to less plastic with its environment friendly food and industrial packaging. Finally, we feel that recent underperformance of BABA is exaggerated and that their quarterly results should comfort investors and help the stock to progress again.