After three favourable summer months in June, July and August, during which the MSCI World Total Return gained 6.7% and the Euro Stoxx 600 rose 4.6%, the post-vacation atmosphere in the financial markets has been dominated by fears of a resurging pandemic, a vaccine more likely to arrive in 2021 than in late 2020, and therefore possibly less robust economic figures in the fourth quarter. Both indexes lost 1.5% in September, pulled down by corrections in US tech stocks (notably Apple and Tesla) and in oil and financial stocks on both sides of the Atlantic. All in all, the stock markets have been fluctuating within a corridor for several months, with limited volatility and a confirmed lag in the European markets.
Faced with feverish markets, central bank and government policymakers continue to pledge their unwavering support. The monetary authorities are holding interest rates at rock bottom levels, in all likelihood for the long haul, as illustrated by the Fed, which is now prepared to let inflation rise above 2% until it reaches a long-term average of 2%. At the same time, governments are launching recovery plans. Yet it will take a while to implement these plans in Europe, and in the United States, the Democrats and Republicans still disagree on a stimulus package. Even so, the US economic engine keeps chugging along, adding another 661,000 new jobs in September and bringing the unemployment rate down from 8.4% to 7.9%. GDP growth could even rebound by 30% in the third quarter. Policymakers are unanimous in their responses, which reflects recurrent fears of a fragile recovery, notably in Europe, where an array of precautionary public health restrictions are raising fears that whole sections of the economy could be stifled. The pullback is also fed by uncertainty over the unfolding and outcome of US presidential elections.
In contrast, China’s economic recovery is gaining in intensity. PMI confidence indexes in both manufacturing and non-manufacturing have been in expansion territory for several months already and continue to rise. Moreover, economic activity has now surpassed the country’s pre-crisis levels.
In an environment filled with uncertainty about what lies in store in the months ahead, we strive to concentrate our positions on stocks with solid balance sheets offering proven competitive advantages. In other words, we are looking for stocks whose quality will enable them to weather this new crisis, regardless of how it evolves or how long it lasts, and possibly even to pull through stronger. Quality assets can now be purchased at attractive prices, and investors are seizing these opportunities, as illustrated by Garda World’s bid for rival G4S, recent manoeuvrings around Veolia-Engie-Suez, and Ping An’s stake in HSBC.
In September, Clartan’s SICAV compartments also fluctuated within a narrow channel, with asset values declining between 1% and 2% depending on the degree of equity exposure. Lastly, we are happy to announce the launch of our new ESG fund, Clartan Ethos ESG Europe Small & Mid Cap, on 21st September. This fund focuses on small and mid-cap European companies that proactively manage their non-financial Environmental, Social and Governance (ESG) performance. To learn more about this new fund, please go to the Clartan website or contact one of our fund managers.