October 2022

Even if sentiment remains disturbed by the spectre of a major global slowdown, the equity markets had their “Indian summer” in the second half of October thanks to the favourable tone of many nine-month earnings releases.

The economic outlook remains subdued: the International Monetary Fund is now forecasting global growth of 3.2% this year with inflation at 8.8%, figures that encourage central banks to continue tightening monetary policy despite the weak expansion. Sovereign 10-year rates have returned to 2.8% in France and 4.1% in the United States, which radically alters the financial equation of indebted economic agents compared to previous years. In concrete terms, one could say that there is no free lunch from now on, and debtors, whether they are States, companies or households, now have their eyes riveted on the decisions of the FED or the ECB, and their social repercussions. However, most of the path to higher rates seems to have already been taken and economic weaknesses are already largely reflected in stock prices. Investors have therefore shifted their focus from macroeconomic views to a microeconomic examination of companies.

And we find that the latest round of earnings releases has actually helped equity markets to recover. Here are a few examples among the companies held in the funds: Publicis (significant stake in Clartan Europe and Clartan Ethos) saw its business grow by +23.5% in the third quarter and raised its organic growth and margin targets for 2022 for the second time. Similarly, Sanofi (one of Clartan Valeurs’ top holdings) expects full-year profits to rise by around 16% after operating performance well above its own expectations. Swedish company Munters (Clartan Ethos’ top holding) is showing impressive sales momentum (order book up 145%).

The euphoria is not general: the prices of technology companies Alphabet, Amazon and Meta (which we don’t hold) have fallen by -9.5%, -15% and -32% respectively, following the publication of figures below the expectations raised by their high valuations. In October, the Nasdaq rose by only 4.5% compared with 8.6% for the S&P 500 (and almost 9% for the CAC 40, as seen in the Clartan Europe fund).