Macro & Politics: Do new times require new investment strategies?
After a prolonged period of new highs and everlasting optimism the markets finally caught a sudden cold due to the Corona Virus. What people initially thought was just another seasonal virus has managed to spread globally and cancel world-known events such as the Geneva Motor show.
Plenty of commercial fairs are postponed and major companies are enforcing travel bans during the course of the epidemy. The Corona outbreak comes at a sensitive time in a fragile economic environment and will surely dent global growth. It also brings uncertainty as, so far, no one knows how far and how long it will spread and last. The world economy will have a recession this year as there has been too much damage done to consumer confidence and supply chains. It is too early to grasp the magnitude of the slow down and how long it will take to recuperate but things will as always eventually settle.
The usual saviors, central banks, have reacted in Japan and most of all the US Fed who surprisingly cut its rates by 50 basis points on March 3rd but it didn’t provide the confident messaging the market was thirsting in its comments. As the overall mood has gone from complacency to irrational fear, we calmly wait for the dust to settle as we feel this correction will provide interesting investment opportunities
Markets: Worst week since 2008
The last week of February delivered the worst performance since 2008 with many indexes down double-digit figures. Eurostoxx 50, S&P 500 and the Japanese Nikkei were all losing more than 8% YTD at the end of the month and the Volatility index reached an all-time high.
For the 1st time in a long time, all assets classes tumbled with Bond spreads rising, fading liquidity and even gold dropped in a sell at whatever price frenzy.
Aulien was down 1.9% for the month and was down 1.5 YTD. The fund had previously sold cyclicals and continued to take some profits ahead of the correction (ASML) while adding its exposure to well diversified bond funds. In order to reduce our exposure to less liquid stocks, we sold Cibus Nordic Estate and increased our exposure in Lundin Petroleum after what we thought was an exaggerated correction. We have also taken advantage of a recent rebound to sell our longest duration bonds (Air France, Intrum and Renault Finance) in order to build cash for future bargains. We feel confident that our current asset allocation is well suited to ride through the current storm and will soon allow us to reallocate into growth companies with sound balance sheets.
Possible purchases include ABB, ASML (repurchases at a lower price), Fanuc, Splunk (hefty corrections) and adding to Novartis.