The main stock markets had contrasting performances in August after the sudden correction that started at the beginning of the month. The EuroStoxx 600 finally rose by +1.5%, the S&P 500 by +0.2% in Euros but the Nasdaq in Euros dropped by -1.1% between July 31 and August 30.
The main stock markets indeed started to fall at the beginning of the month, with the American Nasdaq showing particularly pronounced weakness, as well as the Asian indices, often heavily exposed to the semiconductor sector, such as in South Korea and Taiwan. The low point was reached on Monday, August 5, when we woke up to the news that the Japanese Nikkei had dropped by as much as 12% overnight. All global stock exchanges have since rebounded, leaving many investors perplexed about the reason for this disruption.
Some accuse the Bank of Japan. Its historic decision to raise its interest rate at the end of July is said to have caused the explosion of the famous “Yen carry trade”, which involves borrowing in a low-yield currency such as the Yen to invest in a high-yield currency such as the US Dollar. The increase in the cost of borrowing in Yen is said to have triggered a wave of buybacks and unwinding of positions that destabilized the markets. In any case, this episode lasted only as long as a storm but also left some traces. The bond market clearly sent the message to central banks that it was time to lower interest rates without delay, on the one hand. On the other hand, defensive sectors such as pharmaceutical companies or utilities fared better than cyclical stocks or semiconductor companies. We are therefore faced with the paradox of a market that rises thanks to defensive stocks.
Nevertheless, it must be acknowledged that the macroeconomic indicators are still lackluster. After an improvement earlier this year, commodities have sharply declined in the summer. Consumption is still flat, the job market shows obvious signs of fatigue, and China does not seem to be recovering from the violent real estate crisis that has been going on for almost 3 years. In this context, it is not surprising that some of the stocks we hold in our portfolio, which are exposed to the cycle, are experiencing some difficulties. The question now facing us is whether we are on the eve of an improvement or not, as the ‘slump’ has been going on since the beginning of 2022. Interest rates will now fall, that is certain. Will this be enough to revive the economic engines of consumption and investment? This is what we hope for, but investors remain cautious. They now await tangible evidence of a recovery to support the stocks of certain sectors that we hold, such as banks, materials, energy, and semiconductors.
Clartan funds also had contrasting performances in August: Valeurs declined by -0.4%, Europe by -1.2%, and Ethos by -0.5%, but Flexible increased by +0.8% and Patrimoine by +0.6%.