February 24, 2017

DNCA's weekly market outlook by Igor de Maack

Management comment

The annual reporting season has enabled us to shift our focus away from political issues for the time being. In the wake of the banking sector during the second half of 2016, telecoms have proved that the sector may represent a profitable bet for 2017. Telecom Italia, Telefonica, Orange and Bouygues all published healthy figures. The number of fibre-optic and broadband subscribers continues to progress throughout Europe and mobile average revenue per user (ARPU) has begun to stabilise. Gross operating earnings should therefore finally increase, along with dividends. Telecoms infrastructures, media and digital databases will be critical, representing a choice investment theme in our funds, particularly as valuations remain reasonable.

In the bond market, investors, particularly in the US, are awaiting the next move from the Fed. Over the past ten years, the US central bank has hiked rates only twice, compared to 35 times during the 70s, 28 times during the 80s, 11 times during the 90s and 20 times during the 2000s. The current monetary cycle has therefore proved to be exceptional, along with the all-time highs recorded by the US stock market.

In Europe, the past decade saw equity markets hit by several episodes of high volatility (subprime crisis in 2008 and the 2011 eurozone crisis). Investors have also become aware of the fragility of democratic systems, which are being threatened across the board by politicians preaching a brighter future using old recipes which have already proven inefficient in the past. However, hope has been restored over the past few weeks, with European equities posting positive inflow for the fifth week in a row (USD 5 billion). This glimmer of hope, despite the forthcoming elections, could shore-up the equity market which has been deserted over so many years as a series of valuation bubbles burst (internet, debt, etc.) when confidence in the asset class was undermined.

In terms of equity investments, despite the inherent risks, we are nonetheless tempted to apply the old Latin adage found on certain wine bottles:  abusus non tollit usum (abuse does not proscribe use).

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in February 24th, 2017.

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The annual reporting season has enabled us to shift our focus away from political issues for the time being. In the wake of the banking sector during the second half of 2016, telecoms have proved that the sector may represent a profitable bet for 2017. Telecom Italia, Telefonica, Orange and Bouygues all published healthy figures. The number of...
2017-02-24