June 22, 2018

Change is now and ever

Management comment

With General Electric pushed out of the Dow Jones index after more than a century of true and loyal services, as Facebook, Amazon and Netflix hit all-time highs in the stock market, the US indices are in the process of definitively burying the old economy. Over the past few weeks, growth stocks, millennial stocks and tech stocks have carried away everything in their path, despite highly generous valuation multiples, relegating value themes to equity portfolio oblivion. There is almost an air of the Nifty-Fifty from the 1960-1970s when high-PE stocks topped stock markets performances. At the time however, the stocks in question were very different from the ones trading on the highest multiples today. The market stars were Coca Cola, Polaroid, Gillette, Revlon...and let us not forget that the following decade was disastrous for these stocks in terms of underperformance.

Global equity markets currently remain prisoners to announcements of protectionist measures on both sides of the Pacific. Currencies and exchange rates are caught between divergent monetary policies and deviating trends in economic momentum.

The major sectors exposed to US-Europe-China trade relations (automobile, semiconductors, industry) are beginning to assess their potential losses. Daimler for example has announced slightly less ambitious operating objectives than expected. China, the global growth driver, has much to lose in a protectionist contest as its domestic economic model is blighted by imbalances (high opaque debt, overheating real estate prices, ecological disasters, unfavourable demographic trends...). China cannot yet do without exports, particularly to the US, and owns part of the country’s budgetary financing via its reserves invested in US T-bills. Its strength therefore remains based on its unique concentration of power and collective discipline within such a huge population, unprecedented in the history of humanity, and in a globalised capitalist economic system.

As a sign of the changing times and despite the anti-tobacco policies progressively put in place around the world, Canada is the first G7 country to legalise the production and consumption of recreational cannabis.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in June 22nd, 2018.

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With General Electric pushed out of the Dow Jones index after more than a century of true and loyal services, as Facebook, Amazon and Netflix hit all-time highs in the stock market, the US indices are in the process of definitively burying the old economy. Over the past few weeks, growth stocks, millennial stocks and tech stocks have carried...
2018-06-22