October 28, 2016

DNCA's weekly market outlook by Igor de Maack

Management comment

Quarterly earnings season showed itself to be rather mixed, despite the fact that CEOs are not expressing genuinely negative views of their day-to-day business. While some companies posted strong financial results (Sanofi, Total, BNP Paribas, STM, LVMH, Volkswagen), others were disappointing (Capgemini, Publicis) or even lowered their objectives (Ryanair, Gemalto, Ericsson).  In a technical market with no volume and constant outflows (for the 38th consecutive week), stock sanctions can sometimes seem too harsh. Typically, November is the time when analysts make their last profit revisions for the current year. These revisions are expected to be more or less stable both in the US and Europe.

For 2017, growth is expected to be +12% and +14% respectively for the two regions, which is comparable to the last five years. As a result, it is not unreasonable to doubt 2017 predictions and be concerned that they will also have to be revised downwards over the course of next year. But as Mark Twain said, “History never repeats itself, but it often rhymes.” The other rhyme in this situation is the bond market. For the past few weeks, interest rates have been strained. The 10-year Bund is now up to 16 base points, moving away from its record low this year. The environment is unfavourable for long-term bond investments, as it is influenced by inflationary pressures and the likely US rate hike in December.

European equities continue to provide an attractive yield and a nominal asset base (indexed on inflation). Much like the dichotomy of obscurity and clarity found in Rembrandt’s work “The Night Watch,” financial markets are caught between darkness and light. Investors experience both negatives (Brexit, upcoming elections, lack of worldwide growth) and positives (well-managed companies, large dividends and reasonable valuations for some).

Good can sometimes spring from the darkness, and it is in these fleeting moments of light that investors had to seek opportunities for performance in 2016.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in October 28th, 2016.

This promotional document is a simplified presentation and does not constitute a subscription offer or an investment recommendation. No part of this document may be reproduced, published or distributed without prior approval from the investment management company.

DNCA Investments is a trademark held by DNCA Finance

Quarterly earnings season showed itself to be rather mixed, despite the fact that CEOs are not expressing genuinely negative views of their day-to-day business. While some companies posted strong financial results (Sanofi, Total, BNP Paribas, STM, LVMH, Volkswagen), others were disappointing (Capgemini, Publicis) or even lowered their objectives...
2016-10-28