November 17, 2017

European stock markets take a breath after several consecutive bearish sessions.

Management comment

Equity markets rallied after a significant correction this week, particularly in Europe. Although some indicators triggered some (mild) panic, the global environment remains buoyant. The euro-dollar exchange rate momentarily strayed outside of the 1.18 - 1.20 trading range and the price of crude eased. The situation in the Middle East nonetheless continues to weigh on sentiment following intervention by Saudi Arabia and its ongoing proxy conflict with Iran in Yemen, combined with the destabilising influence in Lebanon and budgetary issues in Turkey and lastly the delicate power handover in Algeria after the Bouteflika reign. Among other oil-producing countries, Venezuela officially defaulted and joined the list of countries having tested social-populism by squandering oil revenues.

Meanwhile, consumer confidence remains firm in the US, as illustrated by strong Q3 figures from Walmart, including organic growth of 2.7% which astounded many investors who had already presumed that bricks-and-mortar retailing is dead and buried. Similarly, Carrefour also recouped domestic market share in October according to Kantar data. On-line retailing also remains dynamic however, as demonstrated by the spectacular results of the annual Singles Day organised by the Chinese group Alibaba, which generated 25 billion in transactions in one day. The level of confidence expressed by the leading US retailer bodes well a week ahead of Black Friday.

Consumer sentiment in China is just as important for Asia and the rest of the world. The conjunction of a strong macro-economy and a healthy micro-economy should continue to drive equities, particularly as yields remain very low in fixed-income markets. 17% of the global bond market, i.e. USD 8,000bn, is generating negative yields.

Despite the old market adage “trend is your friend”, investors must be wary of following the herd and should meticulously search out hidden treasures by focusing on companies which will beat earnings consensus. The real nuggets are stocks also trading on attractive valuation multiples. Discounted sectors such as telecoms are a good example. Investors welcome reasonable valuations combined with solid figures (e.g. Vodafone and Bouygues), which will undoubtedly provide the backdrop for 2018.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in November 17th, 2017.

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Equity markets rallied after a significant correction this week, particularly in Europe. Although some indicators triggered some (mild) panic, the global environment remains buoyant. The euro-dollar exchange rate momentarily strayed outside of the 1.18 - 1.20 trading range and the price of crude eased. The situation in the Middle East...
2017-11-17