April 13, 2018

Investors are keeping their composure despite volatile markets

Management comment

The markets, already held captive by a trade war, are now also prisoners of military escalation in Syria. Comments regarding an imminent air strike against the infrastructures managed by the ruling regime caused the oil price to surge through the $71 mark on the Brent index.

 The entire sector benefitted from this upswing and a number of oil services companies launched bond issues, capitalising on the positive momentum in the price of crude over the past few months and strong earnings published by TGS. Vallourec and CGG both announced plain-vanilla bond issues maturing in 2023 paying nominal coupons of 6 and 8% respectively. The promise by the Chinese president Xi Jinping to open-up the economy, notably by raising the capital ownership limit in the automotive and financial sectors, partially reassured investors.

 Against this persistently volatile backdrop, investors have nonetheless remained relatively composed. The French CAC 40 index is now in positive territory, including reinvested dividends, while the Italian Footsie Mib index has returned almost 7%. In terms of sectors, investors have switched their attention back to utilities, driven by the sharp rally in the CO² price which has almost doubled since the beginning of the year, and cost-cutting programmes which have improved free cash-flow outlook.

 Some utilities groups, such as ENEL in Italy, have launched ambitious schemes notably in the field of renewable energies, network digitalisation, electric vehicles and end-user distribution. There have been no major changes on the macroeconomic front over the past few weeks. The downtick in the indices may be only temporary.

 We must now hope that the quarterly reporting season gets off to a good start, as certain major European groups such as Carrefour and Sodexo have issued disappointing earnings guidance or profit warnings. Like in 2017, this theme will be the determining factor driving US and European equity indices.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in April 13th, 2018.

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The markets, already held captive by a trade war, are now also prisoners of military escalation in Syria. Comments regarding an imminent air strike against the infrastructures managed by the ruling regime caused the oil price to surge through the $71 mark on the Brent index.  The entire sector benefitted from this upswing and a number of...
2018-04-13