In October, the European stock market continued its upward trend (+2.6%). American indices denominated in euros once again outperformed Europe this month: the S&P 500 rose by +4.4% and the Nasdaq by +6.8%.
After another “pressure move” from President Trump on China following the threat of a Chinese embargo on rare earths, the meeting with Xi at the end of October helped to ease the situation, leading to a détente between the two major economic giants. They represent 25% and 16% of the global economy, respectively, leaving Germany a distant thirdat only 4%. It goes without saying that we are pleased to see these trade tensions diminish, even though we remain aware that they could flare up again at any moment. This is the nature of being a stock investor. As the legendary manager Peter Lynch once said: at any given time, there is always a very good reason to be extremely worried about the market!
With the arrival of October, the quarterly publications from the companies in our portfolio have also come in. Overall, they have been quite favorablefavourable, although we have noted some weaknesses and unpleasant surprises in sectors that are more or less directly exposed to consumer spending. The clear trends that have been emerging since the beginning of the year are only being confirmed and intensified for now. Banks, aerospace and defensedefence, as well as companies supplying components for data centerscentres, are thriving, while consumption and construction are still struggling.
The most interesting developments have taken place among major American cloud hosting companies like Microsoft, Google, Amazon, and Meta. Although (which we do not own shares in these companies,hold): they have all emphasizedthat they lack sufficient computing capacity to meet the demand for “inference”, which refers to the use of AI. As a result, the enormous budgets for building data centerscentres and computing power have been revised upward again, now totaling in thetotalling hundreds of billions. The funding needs are so significant that the cash generation of these companies, among the most profitable in the world, is starting to fall short. Debt issuances are now flooding the market, with nearly $100 billion issued in recent weeks, raising concerns among some about the inflation of a bubble. On our end, we believe we are witnessing the continuation of an investment cycle similar to those well-known in heavy industries like oil or mining. The thirst for investment persists as long as supply cannot meet demand, then reverses once equilibrium is achieved. This classic cycle, which we have known since at least the beginning of the industrial era and the advent of railroads, remains perilous for investors to navigate. The most astute investors, always staying one step ahead, manage to benefit, while the “followers”, who often buy at the peak only to sell, disheartened, at the lowest point, end up losing out.
We are therefore faced with Ulysses’ temptation off the coast of the Sirens’ island. The allure of AI is so strong that it can drive us to madness.out of our senses. It’s up to us to equip ourselves with our wax earplugs: discipline and a lack of emotional attachment to our investments.
Clartan funds had mixed performances in October. Valeurs showed +4.1%, Europe +0.5%, and Ethos +0.6%. Patrimoine is also rising ofrose by +0,6%, Flexible ofby +0,7% and Multimanagers by +1.2%.