Monthly management comment
Macro & Politics: “ A changing world ”
Joe Biden eventually managed to win the US presidential election but it was a close race. Despite what many people wish, there were still plenty of Trump voters and the world remains quite divisive on many topics. Let’s hope that the new President will bring some reconciliation and trust in this stressed world. The good news is that a split democrat President / republican senate seems to be the best compromise for the general political mood but also for financial markets. The size of the forthcoming economic stimulus will probably be smaller but compensated by limited tax hikes. The other major headline remains the everlasting persistence and expansion of the COVID-19, with the second wave figures often outpacing the 1st one and forcing most European Governments to new curfews and confinements. These measures will undoubtedly bend the recent fragile recovery and it remains to be seen how severely they will impact the current cycle. The ECB and Fed puts are still in place to reassure investors but we anticipate a great deal of stress in sectors that have to bear with most of the damage such as tourism, restaurants, leisure and shopping. Reported macro figures were all encouraging before the renewed sanitary issues and even splendid in China with positive GDP growth and no significant COVID recurrence. 3Q corporate earnings were generally reassuring and slightly above expectations but did not prevent a sluggish market.
Markets & Investment decisions: “ Will a sector rotation finally happen ? ”
Equity Markets faced a difficult month of October and almost all indexes lost ground (Eurostoxx 50 down 7.4 %, S&P 500 down 2.8 %, Nasdaq -2.3 % and Swedish OMX down 6.1%). Interestingly the market leading tech sector did not manage to maintain its streak while delivering better than expected earnings. It seems like a long waited sector rotation could be in the cards. While all the famous FANGS and Teslas continue to expand, their valuation have reached thin air and decent value stocks with sound balance sheets could attract some capital away from fantasy ratios. These shifting market conditions kept us on our toes and we have initiated some moves away from crowded sectors (sales of Powercell, Nokia and DPAM real estate Fund) and into themes we had previously neglected. We have therefore bought some shares in UBS (on the back of encouraging results), Novo Nordisk (great defensive story), Tomra (plastic recycling remains a hot topic) and Investor (good proxy to all the Swedish industrial and financial universe).
We also reinitiated a position in Ali Baba taking the opportunity of the correction following mixed earnings and issues with the Ant IPO. Our current favorite picks include Shimano (great earnings), Fanuc (technical breakout) and Tobii (post earnings correction creates an opportunity.